According to Law360, a new rule requiring millions of companies to disclose their beneficial owners to the U.S. Department of the Treasury is now in effect, many may not know they are responsible for these reporting obligations.
The rules for reporting beneficial ownership information to the Treasury's Financial Crimes Enforcement Network are intended to unmask shell corporations that may be used for financial crimes including money laundering, and they're primarily aimed at smaller companies. The requirements became effective with the new year. The new reporting requirements could potentially apply to up to 32 million entities.
Congress enacted the CTA in 2021 as part of the Anti-Money Laundering Act, within the National Defense Authorization Act. Finalized in 2022, the BOI reporting rule requires businesses to submit beneficial ownership information that FinCEN said it will use to create a national database that will help target tax evasion, money laundering and other crimes carried out through shell companies.FinCEN Has Noted That Beneficial Ownership Information Refers To Identifying Information About The Individuals Who Directly Or Indirectly Control A Company.
Reporting companies have to report the name, date of birth and residential address of each of their beneficial owners and provide identification such as a passport or driver's license.
The rule requires companies formed before Jan. 1, 2024, to complete their filings by Jan. 1, 2025. Companies formed during this year will have 90 days to complete their filings.
Certain "large" companies, which FinCEN defines as those with more than 20 full-time employees in the U.S. and at least $5 million in gross receipts or sales, among other things, are exempt from the BOI reporting requirements.
The rule requires companies formed before Jan. 1, 2024, to complete their filings by Jan. 1, 2025. Companies formed during this year will have 90 days to complete their filings.
Individuals Who Willfully Violate The BOI Reporting Requirements May Face Civil Fines Of Up To $500 Per Day That The Violation Continues, Criminal Fines Of Up To $10,000, And Up To Two Years Of Imprisonment, According To FinCEN.
Certain "large" companies, which FinCEN defines as those with more than 20 full-time employees in the U.S. and at least $5 million in gross receipts or sales, among other things, are exempt from the BOI reporting requirements.
Erin Bryan, co-chair of Dorsey & Whitney LLP's consumer financial services group, said companies should figure out whether the beneficial ownership rule's filing requirements apply to them.
"There are 23 exemption categories, but it is not always obvious whether an exemption applies to a particular company," Bryan said in an email. "Corporate families may even discover that some of their entities qualify for exemptions while others do not."
Bryan noted that beneficial owners include individuals who own at least 25% of a company and those who have "substantial control" over the company. Companies need to disclose each beneficial owner's name, date of birth and address, and they are required to submit a photo of a government ID.
FinCEN has said that companies can avoid penalties if they correct mistakes or omissions in their original reports within 90 days of its filing deadline. But the agency noted companies could face civil and criminal penalties for disregarding BOI reporting obligations.
"There are 23 exemption categories, but it is not always obvious whether an exemption applies to a particular company," Bryan said in an email. "Corporate families may even discover that some of their entities qualify for exemptions while others do not."
Bryan noted that beneficial owners include individuals who own at least 25% of a company and those who have "substantial control" over the company. Companies need to disclose each beneficial owner's name, date of birth and address, and they are required to submit a photo of a government ID.
Bryan Said That In Her Experience, the
High-Net-Worth And Foreign Investors Have Been
Reluctant To Provide That Kind Of Information,
"So The Conversations Should Not Be Left To The Last Minute."
High-Net-Worth And Foreign Investors Have Been
Reluctant To Provide That Kind Of Information,
"So The Conversations Should Not Be Left To The Last Minute."
FinCEN has said that companies can avoid penalties if they correct mistakes or omissions in their original reports within 90 days of its filing deadline. But the agency noted companies could face civil and criminal penalties for disregarding BOI reporting obligations.
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