A New Federal Requirement for Small Business

There’s a new federal rule requiring more than 32 million small businesses across the United States to register and file with a bureau of the U.S. Treasury Department called the Financial Crimes Enforcement Network (FinCEN). The Beneficial Ownership Information (BOI) database collects information about who ultimately owns and controls each reporting company. What follows are frequently asked questions about the BOI.

My bank asked me for this same information. Do I still have to register? Yes, businesses that are not exempt must fulfill the federal requirement to register with the BOI. For now, banks collect this information independently because the BOI database won’t be accessible by financial institutions until the very last phase of the project. (Timing is not yet determined.)

Why did FinCEN create the BOI?  In 2021, Congress passed the Corporate Transparency Act on a bipartisan basis.  This law directed FinCEN to create a national registry as part of the U.S. government efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures. This provision helps the United States combat money laundering — and brings it in line with many European nations that already have beneficial ownership registries in place.

Who has to report and when? Your company may need to report information at boiefiling.fincen.gov about its beneficial owners if it is:

  1. A corporation, a limited liability company (LLC), or was otherwise created in the United States by filing a document with a secretary of state or any similar office under the law of a state or Native American tribe; or
  2. A foreign company and was registered to do business in any U.S. state or Native American tribe by such a filing.

A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial beneficial ownership information report. Visit FinCEN’s website for deadlines for newly created companies.

Is there a fee for submitting a beneficial ownership information report to FinCEN? No. There is no fee for submitting your beneficial ownership information report to FinCEN.

Who is exempt? Twenty-three types of entities are exempt from beneficial ownership information reporting requirements, including publicly traded companies, nonprofits, insurance companies, public utilities and certain large operating companies. Large operating companies are exempt if they have 20 or more full-time United States-based employees and a physical office in the U.S. with more than $5 million in gross receipts or sales from U.S. sources reported to the Internal Revenue Service (IRS).

Is this new? The requirement to register and file with the BOI is new, but the U.S. strategy around combating transnational crime dates back to 2011 with Executive Order 13581 declaring transnational crime a national emergency and threat to the stability of international political and economic system.

Section 4 of that order provided that in order for crime-fighting measures to be effective, people and entities participating in transnational organized crime were not owed any notice or explanation for the blocking of their ability to transfer funds or other assets. Other key events in this effort are outlined on FinCEN’s website.

Is the registry open to the public? No. Beneficial ownership information reported to FinCEN is stored in a secure, non-public database using rigorous information security methods and controls typically used in the Federal government to protect non-classified yet sensitive information systems at the highest security level.

What’s the penalty for not registering and reporting to FinCEN’s BOI? The business entity and/or its senior officers may incur civil penalties of up to $500 per day or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000.

What does this have to do with banks? To maintain the integrity of the global and national financial system, banks are required by law and by multiple regulatory agencies to have formal processes in place to screen for fraud, scams and transactional patterns that could be indicative of complex financial crimes. This work is very serious and highly secretive to protect all parties involved.

In addition to vigilance for signs of money laundering, banks are responsible for:

  • Making sure the person in front of us is the person they say they are
  • Validating the authenticity of the financial instrument presented
  • Confirming that accounts set up for a specific purpose (e.g., tax-advantaged health savings accounts, 501c3 accounts) are used for that purpose
  • Preventing unauthorized people from moving or accessing funds

These processes also protect the banks, their customers and shareholders and the community.

For more information on the BOI, FinCEN has provided an informational brochure as well as a small entity compliance guide.

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