The banking and financial services industries have been aware of the Financial Crimes Enforcement Network (FinCEN) for a long time, but now, because of the Corporate Transparency ACT (CTA), virtually all industries, inclusive of small business owners, need to know about FinCEN too.
Beginning in 2024, the CTA requires limited liability companies, corporations, and other legal entities to file a Beneficial Ownership Information (BOI) report, a new reporting requirement now monitored and enforced by FinCEN.
The bureau was founded in 1990 under Treasury Order Number 105-08. Under the mantra “[f]ollow the money,” investigators use financial information to crack down on fraud, find extensive criminal networks, and aid other investigative organizations in closing cases of financial crime.
What is FinCEN’s Interest in My Business’s Ownership?
Aside from movies and TV shows like The Accountant and the Netflix series Ozark, most small business owners have never interacted with (or even heard of) the Financial Crimes Enforcement Network. This leaves many small business owners asking, “What is FinCEN?”
If a small business has interacted with FinCEN, it’s likely a filer of a foreign bank account form (Form 114). FinCEN is an investigations arm of the U.S. Department of the Treasury, reporting to the Treasury Under Secretary for Terrorism and Financial Intelligence.
Their mission is “to safeguard the financial system from illicit use, combat money laundering and its related crimes including terrorism, and promote national security through the strategic use of financial authorities and the collection, analysis, and dissemination of financial intelligence.”
But the day-to-day responsibilities are a little more straightforward:
- Receive and Maintain Transaction Reports
- Analyze Transactions
- Share Financial Intel
- Issue Regulatory Guidance
- Manage Sanctions
- Collaborate Internationally
So, what do they have to do with small businesses? Filing any personal information with a high-level financial, money laundering, fraud, and terrorism investigation organization is daunting.
The bureau’s work is reliant on national-scale data. In an effort to crack down on money laundering and criminal activity conducted in bad faith or through shell companies, the organization is dedicating significant resources to better understanding and holding accountable those who make financial decisions for organizations.
The Corporate Transparency Act
The Corporate Transparency Act, enacted in January 2021, contains the new BOI reporting requirement. But because the law was passed in 2021, amidst the American Rescue Plan, the emergency approval of COVID-19 vaccinations, and other pandemic concerns like lockdowns and employee retention credits, many business owners completely missed any press around this new law.
The law is intended to bring the U.S. in line with many European countries in the way it collects financial information and monitors information about the direct or indirect ownership of LLCs, corporations, and other corporate vehicles that could be used to perpetuate tax evasion, money laundering, and terrorism.
To many, the legislation is right-minded but needs to be better executed. On the Grow Money Business podcast, Kenny Dettman said he’s worried the reporting requirement will significantly burden the companies least likely to be financial crime offenders.
“The reason behind this legislation is to deter nefarious activities that are promulgated by being able to stay anonymous with a US LCC, corporation, or other type of corporate entity,” said Kenny Dettman, Co-Founder of FileForms. “The intent is good, but it’s going to dramatically affect mostly businesses whose intended purpose is not to perpetuate nefarious activities, and the penalties are quite steep.”
The people most implicated by the Corporate Transparency Act are the ones most likely to be unprepared for or unaware of filing requirements.
FinCEN’s Beneficial Ownership Information Report
Beginning in 2024, those categorized as “reporting” companies must file a BOI report with FinCEN or face a civil penalty of up to $591 per day or a criminal penalty of up to two years in prison and a fine of up to $10,000.
Those fines may also be levied against anyone who willfully files an incorrect or false report.
Companies founded on or between January 1, 2024, and December 31, 2024, must file the BOI report within 90 days of formation. Pre-existing companies have until the end of 2024 to file a BOI report.
Beginning in 2025, newly formed companies must file the BOI report within 30 days.
And, while the report is a one-time filing, a new report must be filed anytime any BOI information is changed. The information must be updated in the event a beneficial owner’s passport or driver’s license number changes or a change of address or name for any beneficial owner. Further, anytime a personnel change creates or negates a beneficial owner, the report must also be updated. That situation potentially includes adding or removing C-suite executives or bringing on a new owner or investor in a business.
This government-mandated chore could become cumbersome for some small businesses with a rotating cast of advisors, equity partners, and decision-makers. And the definition of a beneficial owner is rather expansive.
Once determined, the following information must be filed for anyone defined as a beneficial owner:
- Home address
- Date of birth
- Copy of driver’s license or passport
How to Know if You’re a Beneficial Owner
The rules regarding who is or isn’t a beneficial owner leave a lot of room for interpretation. Some organizations offer helpful tools to determine whether you are a beneficial owner or not.
This reporting regulation will capture a massive amount of the United States business landscape. FinCEN’s current estimate is that between 30 and 40 million businesses will be impacted in 2024 when the reporting obligations go live.
FinCEN defines a beneficial owner under two categories:
- Equity Interest
- Anyone with 25% financial equity in the company is deemed a beneficial owner.
- This category will likely include the C-Suite and could also require general counsel or significant board members to be listed as beneficial owners. It may also include anyone with substantial control (25% influence) of an entity. This definition was likely issued to serve as a catch-all for situations where a company may disguise the identity of the individuals who are actually “in charge” of the company.
Find Help Navigating FinCEN Regulations and BOI Reporting
Most small business owners are likely more worried about compliance than being found guilty of large-scale money laundering. But compliance isn’t black and white with the loose definitions and updated filing obligations.
There isn’t much urgency for pre-existing companies with simple ownership structures. These companies have until the end of the year to complete the BOI.
For multi-company organizations like family offices or private equity funds, a great deal of information must be analyzed and collected — much of which will likely need to be monitored and updated regularly within 30 days of the change occurring.
Thanks to a last-minute reprieve from FinCEN, businesses initially registered in 2024 have 90 days to file their first BOI report (increased from 30 days). But that isn’t a lot of time for new companies who might be preoccupied with more pressing issues early on when starting a business.
And since the regulations blur the lines between legal, financial, and archival compliance, there isn’t a clear answer as to whether your attorney, accountant, administrative assistant or a third party should assist with the responsibility.
Luckily, some BOI-focused filing services, like FileForms, are ready to help companies achieve and maintain CTA compliance.
The key is finding a compliance partner who can help you determine all reporting companies and beneficial owners and provide legal support if needed for complex structures. You need a partner who can keep an eye on ongoing regulation changes and help you understand when your own business changes necessitate additional filings.
If you anticipate any of the information on your BOI form changing (new executive hire, board member change of address, etc.), it’s also essential to find a partner that will offer ongoing filing support since FinCEN requires an entirely new filing for any updated information.
Look for a partner who offers:
- Efficient filing technology that will reduce the time you and your organization spend refiling information changes.
- Dependable security is a must when sharing the private personal information of your organization’s stakeholders.
- Live customer support is key when your livelihood is on the line.
- Solutions that work for your organization’s needs, size, and workflow.
- Expertise from legal, business, and financial perspectives, as well as a real-time understanding of the evolving CTA requirements.
- Notifications when the regulations change, or your beneficial ownership information needs to be updated.
- Bulk filing is a must-have for accountants, legal teams, and business advisors who support multiple small businesses and startups.