In an effort to enhance transparency and combat financial crimes, the United States has implemented a significant regulatory change with the introduction of a new federal reporting requirement for Beneficial Ownership Information (BOI). The requirement aims to shed light on the individuals behind legal entities, making it more difficult for illicit actors to hide their identities and engage in money laundering, corruption, or other financial crimes.
Understanding Beneficial Ownership
Beneficial ownership refers to the natural persons who ultimately own or control a legal entity, such as a corporation, limited liability company (LLC), or partnership. These individuals may enjoy the benefits of ownership, such as receiving profits or exercising control, even if their names do not appear on official documents.
Historically, the lack of transparency regarding beneficial ownership has created loopholes that could be exploited by criminals seeking to conceal their involvement in illicit financial activities. The new reporting requirement aims to close these gaps and provide law enforcement agencies with more comprehensive information to trace and prevent financial crimes.
The Corporate Transparency Act
The Corporate Transparency Act (CTA), enacted as part of the National Defense Authorization Act for Fiscal Year 2021, laid the groundwork for this transformative change. The CTA establishes a framework requiring certain corporations and LLCs to report their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.
Who is Affected?
The reporting requirement primarily targets companies that qualify as “reporting companies.” Generally, this includes corporations, LLCs, and other similar entities formed under state law. However, certain entities are exempt from these reporting obligations, such as publicly traded companies, entities already subject to substantial reporting requirements, and those with a physical presence in the United States, like banks and credit unions.
Reporting Obligations
Reporting companies are required to submit a report to FinCEN that includes the names, addresses, dates of birth, and unique identification numbers (such as driver’s license or passport numbers) of the beneficial owners. The reporting company must also provide information about a “reporting person,” an individual responsible for submitting the required information to FinCEN.
Importantly, the information submitted to FinCEN will not be publicly accessible. Instead, it will be maintained in a secure, non-public database accessible only to authorized government agencies for law enforcement and national security purposes.
When Do I Report?
Reports will be accepted starting on January 1, 2024.
If your company was created or registered prior to January 1, 2024, you will have until January 1, 2025, to report BOI.
If your company was created or registered on or after January 1, 2024, and before January 1, 2025, you must report BOI within 90 calendar days after receiving actual or public notice that your company’s creation or registration is effective, whichever is earlier.
If your company was created or registered on or after January 1, 2025, you must file BOI within 30 calendar days after receiving actual or public notice that its creation or registration is effective.
Any updates or corrections to beneficial ownership information that you previously filed with FinCEN must be submitted within 30 days.
Benefits and Challenges
The implementation of this federal reporting requirement brings several benefits to the fight against financial crimes. By creating a comprehensive database of beneficial ownership information, authorities can better trace and prevent money laundering, terrorist financing, and other illicit activities. Increased transparency is expected to serve as a deterrent, making it more challenging for criminals to exploit legal entities for illegal gains.
However, the new requirement also poses challenges for businesses in terms of compliance costs and administrative burdens. Small businesses and startups, in particular, may face difficulties in navigating the complexities of reporting requirements and ensuring timely and accurate submissions to FinCEN.