Julian Drago
February 15, 2024
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The US government has introduced a new regulation to increase transparency in beneficial ownership, aiming to combat financial crimes like money laundering, tax evasion, and terrorist financing. The Federal Reporting Requirement for Beneficial Ownership Information (BOI) is a crucial step towards achieving this goal.
This post will explain what the requirement involves, who it affects, and the consequences of non-compliance.
To understand the new reporting requirement, it's important to first grasp the concept of beneficial ownership. Essentially, this refers to individuals who benefit from owning a company or asset, even if their name is not on the official documents.
These individuals have a lot of power over the entity, usually because they own shares or have voting rights. However, they are often hidden behind legal entities or nominee directors.
Starting on January 1, 2024, many companies in the United States will be required to report details about their beneficial owners. The information must be reported to the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the U.S. Department of the Treasury.
The reporting requirement applies to many types of entities in the United States, including corporations, limited liability companies (LLCs), partnerships, and similar legal structures. This applies to foreign companies that are registered to do business in any state in the US.
Any entity that qualifies as a 'reporting company' must comply with the BOI mandate.
Although the BOI requirement has broad applicability, some entities are exempt from reporting. This includes publicly traded companies listed on major stock exchanges, as they already face stringent disclosure requirements.
Additionally, entities with a physical presence in the United States and fewer than 20 full-time employees, with gross receipts or sales totaling less than $5 million annually, are also exempt from reporting.
Reporting under the BOI mandate requires submitting detailed information about the individuals who ultimately own or control the reporting company. This information includes their full legal name, date of birth, residential or business address, and a unique identifying number such as a Social Security number or passport number. Additionally, entities must specify the nature and extent of their ownership or control over the reporting company.
The Financial Crimes Enforcement Network (FinCEN) has created an electronic platform to simplify the reporting process for entities submitting their beneficial ownership information. This digital portal is secure and efficient, designed to facilitate compliance while minimizing the administrative burden on reporting companies.
Newly formed entities must disclose this information at the time of formation while existing entities have two years from the effective date of the regulation to comply. This timeline allows regulators to scrutinize ownership structures from the outset and gives companies ample time to adapt and implement the necessary changes.
It is crucial to adhere to this regulatory requirement. Noncompliance with the BOI mandate can result in severe penalties, including monetary fines and potential criminal liability for willful violations. Entities may also face reputational damage and heightened scrutiny from regulatory authorities, which can undermine investor confidence and hinder business operations.
The penalties for noncompliance underscore the seriousness with which the government views the issue of beneficial ownership transparency. Regulators impose stringent sanctions to incentivize full compliance and deter entities from circumventing their reporting obligations.
Examples of non-compliance under The Corporate Transparency Act (CTA) include:
Compliance may require extra administrative work for reporting companies. However, the long-term advantages of a more accountable and resilient financial system outweigh the costs. Entities must remain vigilant and proactive in meeting the BOI reporting requirements and maintaining the highest standards of integrity and transparency as the regulatory landscape evolves.
The Openbiz team can guide you through this process.
The US government has introduced a new regulation to increase transparency in beneficial ownership, aiming to combat financial crimes like money laundering, tax evasion, and terrorist financing. The Federal Reporting Requirement for Beneficial Ownership Information (BOI) is a crucial step towards achieving this goal.
This post will explain what the requirement involves, who it affects, and the consequences of non-compliance.
To understand the new reporting requirement, it's important to first grasp the concept of beneficial ownership. Essentially, this refers to individuals who benefit from owning a company or asset, even if their name is not on the official documents.
These individuals have a lot of power over the entity, usually because they own shares or have voting rights. However, they are often hidden behind legal entities or nominee directors.
Starting on January 1, 2024, many companies in the United States will be required to report details about their beneficial owners. The information must be reported to the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the U.S. Department of the Treasury.
The reporting requirement applies to many types of entities in the United States, including corporations, limited liability companies (LLCs), partnerships, and similar legal structures. This applies to foreign companies that are registered to do business in any state in the US.
Any entity that qualifies as a 'reporting company' must comply with the BOI mandate.
Although the BOI requirement has broad applicability, some entities are exempt from reporting. This includes publicly traded companies listed on major stock exchanges, as they already face stringent disclosure requirements.
Additionally, entities with a physical presence in the United States and fewer than 20 full-time employees, with gross receipts or sales totaling less than $5 million annually, are also exempt from reporting.
Reporting under the BOI mandate requires submitting detailed information about the individuals who ultimately own or control the reporting company. This information includes their full legal name, date of birth, residential or business address, and a unique identifying number such as a Social Security number or passport number. Additionally, entities must specify the nature and extent of their ownership or control over the reporting company.
The Financial Crimes Enforcement Network (FinCEN) has created an electronic platform to simplify the reporting process for entities submitting their beneficial ownership information. This digital portal is secure and efficient, designed to facilitate compliance while minimizing the administrative burden on reporting companies.
Newly formed entities must disclose this information at the time of formation while existing entities have two years from the effective date of the regulation to comply. This timeline allows regulators to scrutinize ownership structures from the outset and gives companies ample time to adapt and implement the necessary changes.
It is crucial to adhere to this regulatory requirement. Noncompliance with the BOI mandate can result in severe penalties, including monetary fines and potential criminal liability for willful violations. Entities may also face reputational damage and heightened scrutiny from regulatory authorities, which can undermine investor confidence and hinder business operations.
The penalties for noncompliance underscore the seriousness with which the government views the issue of beneficial ownership transparency. Regulators impose stringent sanctions to incentivize full compliance and deter entities from circumventing their reporting obligations.
Examples of non-compliance under The Corporate Transparency Act (CTA) include:
Compliance may require extra administrative work for reporting companies. However, the long-term advantages of a more accountable and resilient financial system outweigh the costs. Entities must remain vigilant and proactive in meeting the BOI reporting requirements and maintaining the highest standards of integrity and transparency as the regulatory landscape evolves.
The Openbiz team can guide you through this process.
