By Rachelle Cohen and Robert Weiss
With the arrival of 2024, the Financial Crimes Enforcement Network (FinCen), a bureau of the U.S. Department of the Treasury, has begun to implement the Beneficial Ownership Information Reporting Rule established under the 2021 Corporate Transparency Act.
The purpose is to assist law enforcement in finding bad actors who use shell companies and opaque ownership structures to launder money or conceal illicit funds.
Millions of companies (corporations, LLCs, and any other entities created by state filings) will need to report their "beneficial ownership" through FinCen's reporting process.
There are exemptions from the reporting requirements, including for regulated companies, like insurance companies, and for large operating companies that employ more than 20 full-time employees in the U.S., have an operating presence in the U.S., and have more than $5 million in gross receipts or sales in the U.S. See the list below, and the Small Entity Compliance Guide published by FinCen for guidance regarding the exemptions from reporting.
FinCen defines a beneficial owner as an individual who owns or controls at least 25% of a company or who has “substantial control” of the company, which includes senior officers, important decision-makers in the company, or those with authority to appoint or remove officers or directors of the company.
A beneficial owner will need to provide certain identifying information, such as a driver's license number and date of birth.
Rather than provide this information to each reporting company, a beneficial owner can obtain a FinCen ID that is then provided to the reporting company.
The deadline for filing depends on when a company is formed. Existing companies created before Jan. 1, 2024, must file their reports by Jan. 1, 2025.
New companies created or registered after Jan. 1, 2024, and before Jan. 1, 2025, have 90 calendar days after their creation or registration to file their reports. Those created on or after Jan. 1, 2025, will have 30 calendar days to file.
Failure to comply with the BOI filing requirements can result in penalties of $500 per day, to a maximum of $10,000. Willfully providing, or attempting to provide, false ownership information can result in a prison sentence of up to two years.
The agency has created a variety of resources to explain the new rules and what is required to comply with them.
These include a website page, introductory and more detailed video explanations, a 57-page downloadable compliance guide, and an online portal through which individuals and companies can file the required information (https://boiefiling.fincen.gov/fileboir).
Exempt Entities include:
- Securities Reporting Issuers
- Governmental Authorities
- Banks
- Credit Unions
- Depository Institution Holding Companies
- Money Services Businesses
- Securities Brokers or Dealers
- Securities Exchanges or Clearing Agencies
- Other Exchange Act Registered Entities
- Investment Companies or Investment Advisors
- Venture Capital Fund Advisors
- Insurance Companies
- State-Licensed Insurance Producers
- Commodity Exchange Act Registered Entities
- Accounting Firms
- Public Utilities
- Financial Market Utilities
- Pooled Investment Vehicles
- Tax-Exempt Entities
- Entities Assisting Tax-Exempt Entities
- Large Operating Companies
- Subsidiary of Certain Exempt Entities
- Inactive Entities