The Financial Crimes Enforcement Network (FinCEN), an agency of the U.S. Department of the Treasury, plays a critical role in combating money laundering, terrorist financing, and other financial crimes. As part of its mission, FinCEN introduced the Beneficial Ownership Information Reporting (BOIR) requirements, which mandate certain entities to report information about their beneficial owners. This regulation aims to increase transparency and reduce the misuse of legal entities for illicit activities. In this article, we’ll provide an overview of the BOIR filing requirements, who needs to file, and the consequences of non-compliance.
What is BOIR?
Beneficial Ownership Information Reporting (BOIR) refers to a set of regulations requiring certain U.S. entities to report their beneficial owners to FinCEN. A beneficial owner is typically defined as any individual who, directly or indirectly, owns or controls a company or entity. This reporting requirement is part of the Corporate Transparency Act (CTA), which was passed as part of the National Defense Authorization Act in 2021.
The BOIR aims to:
- Increase transparency regarding who truly owns and controls U.S. companies.
- Prevent the use of shell companies and anonymous entities for illegal activities such as money laundering and tax evasion.
- Help law enforcement agencies and financial institutions to identify and track suspicious financial activities.
Who Must File BOIR?
The BOIR filing requirements apply to most corporations, limited liability companies (LLCs), and other similar entities that are created or registered to do business in the U.S. However, certain exemptions exist for specific types of entities.
Entities Required to File:
- Corporations – This includes both domestic and foreign entities that are registered to do business in the U.S.
- Limited Liability Companies (LLCs) – LLCs created in the U.S. or registered to operate in the U.S. also fall under the filing requirements.
- Other Similar Entities – This can include partnerships, business trusts, and any other legal entities created under U.S. state law or that are registered to do business in the U.S.
Exempt Entities:
Some entities are exempt from the BOIR requirements, including:
- Large Operating Companies – Entities that employ more than 20 full-time employees, have a revenue of over $5 million, and operate from physical offices in the U.S. may be exempt from reporting.
- Regulated Entities – Entities already regulated by federal or state authorities (e.g., banks, credit unions, insurance companies) are not required to file BOIR reports.
- Inactive Entities – Entities that are inactive and not engaged in business activities (e.g., holding companies with no significant operations) may be exempt.
- Certain Subsidiaries – Entities that are owned or controlled by exempt entities (like large operating companies or regulated financial institutions) may also be exempt.
It’s important to check whether your entity qualifies for any of these exemptions, as failure to comply with the filing requirement could result in penalties.
What Information Must Be Reported?
The BOIR filing requires entities to report detailed information about their beneficial owners. A beneficial owner is someone who directly or indirectly exercises substantial control over the entity or owns a significant percentage of the entity’s equity.
The key information that must be provided in the report includes:
- Full Legal Name: The name of the beneficial owner.
- Date of Birth: The date of birth of the beneficial owner to verify identity.
- Residential or Business Address: The current address of the beneficial owner, which can be a home or business address.
- Identification Number: The beneficial owner’s unique identifier (such as a passport number or driver’s license number), which may be used to verify their identity.
- Nature of Ownership or Control: A description of how the individual exercises ownership or control over the entity (e.g., percentage of ownership or voting rights).
Entities are also required to update their BOIR filings whenever there is a change in beneficial ownership or control. If a new beneficial owner is added or an existing owner’s information changes, the entity must file an updated report with FinCEN.
Filing Deadlines and Process
Initial Filing:
Entities formed or registered after January 1, 2024, must file their BOIR report with FinCEN as part of their formation or registration process. For existing entities, the filing deadline is January 1, 2025. This initial report must include all required beneficial ownership information as outlined above.
Ongoing Updates:
Entities are required to update their BOIR filing within 30 days of any change in the reported information. This includes changes in beneficial ownership, such as the acquisition or loss of control, or changes in the information provided for existing beneficial owners.
The process for filing is done electronically through FinCEN’s secure online portal. The submission involves completing a form with the required data and submitting it for review. It’s important to ensure the accuracy and completeness of the filing to avoid delays or penalties.
Penalties for Non-Compliance
Failing to comply with the BOIR filing requirements can result in significant penalties. These penalties can apply both to the failure to file the initial report and to the failure to update information in a timely manner. The penalties include:
- Civil Penalties: A fine of up to $500 per day for failure to file or update information. If the failure is found to be willful, the fine can increase to up to $10,000 per violation.
- Criminal Penalties: In the case of knowingly providing false or fraudulent information, criminal penalties can apply, including fines of up to $500,000 and potential imprisonment for up to 2 years.
Given the severe penalties for non-compliance, it is crucial for businesses to stay up-to-date with the BOIR filing requirements and ensure they meet all deadlines.
Why is BOIR Important?
The introduction of the BOIR is a significant step toward increasing transparency and accountability in the U.S. financial system. By requiring entities to disclose information about their beneficial owners, the government aims to reduce the use of shell companies for illegal purposes and to help law enforcement agencies track illicit financial activities more effectively.
For businesses, complying with the BOIR filing requirements not only helps ensure legal and regulatory compliance but also promotes good corporate governance by making ownership structures clearer. Additionally, by participating in the boir filing, entities help build trust with investors, customers, and other stakeholders who may value transparency.
The FinCEN BOIR filing requirements are a vital part of the broader effort to combat money laundering, terrorist financing, and other illicit activities within the U.S. financial system. Businesses must ensure they understand whether they are required to file, what information must be reported, and the deadlines for compliance. Non-compliance with these regulations can result in hefty fines and penalties, so it is essential to stay informed and up-to-date on all filing requirements.
By adhering to the Corporate Transparency Act and filing the necessary BOIR reports, businesses contribute to a more transparent and accountable financial system while avoiding legal and financial risks.