Understanding BOI Reporting to FinCEN: A Basic Overview
In recent years, the U.S. financial regulatory landscape has experienced significant shifts aimed at increasing transparency and fighting financial crimes like money laundering and terrorism financing. One such shift is the introduction of BOI reporting, a requirement established under the Corporate Transparency Act (CTA), which mandates companies to disclose their Beneficial Owners and Controlling Persons to the Financial Crimes Enforcement Network (FinCEN). But what exactly is BOI reporting, and why is it important? Here’s a breakdown.
What is BOI Reporting?
BOI stands for “Beneficial Ownership Information”, which refers to details about the individuals who ultimately own or control a company. These individuals are often not immediately visible, as companies may be structured through complex layers of legal entities. The goal of BOI reporting is to ensure that the U.S. government has accurate, up-to-date information about who is behind companies—information that could be critical for preventing illicit activities such as money laundering, tax evasion, and the financing of terrorism.
Under the Corporate Transparency Act (CTA), U.S. companies are required to report the following Beneficial Owners to FinCEN:
- Individuals who directly or indirectly own 25% or more of the company’s equity interests.
- Individuals who have substantial control over the company, such as executive officers, directors, or other key individuals who can influence decisions.
- Additionally, the law mandates the reporting of the company’s controlling persons—those with significant influence over a company, even if they don’t hold formal titles or ownership stakes.
The Purpose of BOI Reporting
The primary goal of BOI reporting is to improve the U.S. government’s ability to detect, prevent, and investigate illegal activities by providing law enforcement agencies with more transparency regarding the true ownership of companies. Before the implementation of the CTA, it was often difficult to identify the real people behind shell companies or entities used to disguise ownership.
Key reasons for BOI reporting include:
- Combating financial crime: By identifying the actual owners of companies, authorities can better detect and prevent money laundering, terrorist financing, and other illicit financial activities.
- Increasing transparency: Companies, especially those doing business in multiple jurisdictions, often disguise ownership to avoid taxes or evade sanctions. BOI reporting helps eliminate these practices.
- Aligning with international standards: As part of the global effort to combat financial crime, the U.S. is aligning its policies with international standards set by organizations such as the Financial Action Task Force (FATF), which has been pushing for enhanced transparency in company ownership.
Who is Affected by BOI Reporting?
Not all businesses are required to submit BOI reports. The Corporate Transparency Act applies to most U.S. entities, with certain exceptions. For example:
- Large operating companies: Companies with more than 20 full-time employees, over $5 million in annual revenue, or a physical presence in the U.S. may be exempt from BOI reporting.
- Regulated entities: Entities like banks, credit unions, and insurance companies that are already subject to strict federal regulations and oversight are not required to file BOI reports.
- Inactive entities: Entities that are not actively conducting business (e.g., shell companies or those in the process of winding down) may also be exempt.
- Sole Proprietorships: Entities that are not registered with the Department of State are not required to file BOI reports.
However, the rule does apply to smaller, privately-held companies, including LLCs, corporations, partnerships, and other entities that don’t meet the exemptions.
What Information is Reported?
When filing BOI reports with FinCEN, companies must disclose the following information about their beneficial owners:
- Full legal name
- Date of birth
- Residential address
- Unique identifying number (such as a passport or driver’s license number) with a copy of the document being uploaded to the filing website
They must also disclose the following information about the company itself:
- EIN or Tax ID
- Name of the company including any fictitious names or trade names
- Address
- State of formation
This information must be filed via a FinCEN-designated reporting system, and it must be kept up-to-date. Companies are required to file a report upon formation and then update it periodically or whenever there are significant changes in ownership or control.
They must also file information on up to 2 “company applicants”, who would be the person(s) who initially filed the formation documents with the Department of State.
What are the Deadlines?
All entities formed before January 1, 2024 must file by January 1, 2025. Entities formed in 2024 must file within 90 days of creation. Entities created after 2024 must file within 30 days of creation.
How Does BOI Reporting Work?
The reporting process is generally straightforward. Companies need to submit their BOI information directly to FinCEN through the FinCEN Registry, an online platform launched in January 2024. Once a report is filed, FinCEN will maintain the data in a secure, non-public database, which will only be accessible by law enforcement and, in certain cases, financial institutions (with appropriate consent) for due diligence purposes.
Unlike the public corporate registration databases that provide information on legal ownership (such as a company’s Articles of Incorporation), the Beneficial Ownership Report will not be made publicly available. This confidentiality is crucial to prevent misuse of the data, such as identity theft or targeting of business owners for criminal activities.
Penalties for Non-Compliance
Failure to comply with BOI reporting requirements can result in severe penalties. The penalties for failing to file or updating reports include:
- Civil penalties: Up to $500 per day for non-compliance.
- Criminal penalties: Fines of up to $10,000 and/or imprisonment for knowingly providing false or incomplete information.
Why is BOI Reporting Important?
BOI reporting plays a crucial role in the broader effort to combat illicit financial activities. By requiring companies to disclose their true ownership, the U.S. government hopes to:
- Ensures accountability: By tracking the individuals who benefit from a company’s operations, it is easier to hold those individuals accountable for their actions.
- Prevents misuse of companies: Criminals often create shell companies to hide illicit activities, and BOI reporting helps authorities pierce through this veil of secrecy.
- Facilitates investigations: When crimes do occur, investigators will have access to the ownership data they need to trace illicit activities and hold perpetrators accountable.
The Future of BOI Reporting
While BOI reporting is still in its early stages, it marks a critical step toward modernizing financial crime detection in the U.S. Over time, as more companies submit their reports and regulators gain more experience with the system, we can expect to see further refinements in the rules and processes.
For businesses, this means that maintaining accurate records and staying compliant with reporting requirements is more important than ever. It is also a reminder that the financial world is becoming increasingly regulated, and transparency is becoming the norm, not the exception.
Can I Pay Someone to File My Company’s Report for Me?
Yes, this is permitted, however, whether this would be considered practicing law without a license has not yet been determined. Keep in mind that if the person you hire makes an error in your filing or fails to complete it in time, and you suffer monetary penalties or criminal penalties brought by the U.S. Department of the Treasury, and your filer doesn’t not carry insurance (like the malpractice insurance carried by attorneys), you may have little financial recourse against them.
Need Help?
BOI reporting to FinCEN is critically important, and we can do this work for you for a minimal flat fee, no matter what State you live in. Please reach out to us by email at hello@vermillion.law or by phone at (865) 233-3353.