Understanding The New FinCen BOI Reporting Rule

November 22, 2023by Brian Walsh

On January 1, 2024, new rules will go into effect for corporations, LLCs, and other US entities about the reporting of beneficial ownership interests to the US Financial Crimes Enforcement Network (FinCEN). The application of a new rule or regulation, especially by a Federal unit with the word “Crime” in its name, can naturally be a source of stress. Let’s demystify the rule by breaking down what it means, and what you need to know for your business.

What Is a Beneficial Ownership Interest (BOI)?

“beneficial ownership interest (BOI)” can be roughly defined as who actually owns the company.

Lots of companies hide who the owner actually is under a dense structure whereby the business seems to belong to a different person or entity on paper. It’s called “beneficial ownership interest” because it identifies who actually reaps the benefit of ownership of the company.

Given that, a beneficial ownership interest (BOI) is usually defined as:

  • Someone who owns a substantial portion of the company (usually 25%).
  • Someone who exercises significant control over the operation of the company.

What Is FinCEN?

The Financial Crimes Enforcement Network (FinCEN) is a division of the US Treasury Department that collects intelligence and performs regulatory functions, with the purpose of catching or preventing financial crimes like money laundering, illicit use of banking systems, and/or funding of crime or terrorism.

Why Report Beneficial Ownership Interest to FinCEN?

Many beneficial owners choose to hide their beneficial ownership from prying eyes through complex corporate structures which make it hard to tell who actually owns the company. They often do this for perfectly reasonable and morally defensible reasons, like limiting liability or simply protecting privacy.

However, this layering of ownership interest creates the opportunity to launder illegal income or funds connected to terrorism through US shell or front companies. Reporting beneficial ownership information to FinCEN helps identify who reaps the benefit from each company so that streams of income to known illegal actors can be identified.

Who Does This New Rule Apply To?

This new rule applies to:

  • Corporations
  • Limited Liability Companies (LLCs)
  • Other similar entities, such as Limited Partnerships (LPs)

Who Does This New Rule Not Apply To?

This new rule does not apply to (or may not apply to) …

  • Publicly traded companies, which are subject to substantial regulatory scrutiny already.
  • Companies in heavily regulated industries (for the same reasons).
  • Large companies that have a significant operational presence in the US with many employees (might be exempt).

What Has Changed with This New Rule?

Prior to the implementation of this rule change, the rules for reporting beneficial ownership to FinCEN were less stringent, especially at the Federal level.

The process was also less standardized and structured, oftentimes handled at the state level with a variety of requirements and fees.

It could also be unclear which law enforcement agencies had access to the information, undermining the abilities of government agencies to work together to catch criminals.

The rule going into effect January 1, 2024 introduces:

  • Centralized Federal reporting of BOI to FinCEN.
  • Standardized scope of reporting as opposed to variation of reporting requirements state by state.
  • Reporting thresholds and definitions, defining who qualifies as a beneficial owner.
  • Availability of information to FinCEN and law enforcement. (FinCEN reports are not a matter of public record.)
  • Use of FinCEN identifiers (see the section below).
  • Increased scrutiny and penalties for non-compliance.

What Do You Need to Do?

If the new BOI reporting rules apply to your company, here’s what you need to do:

  • Identify beneficial owners – any person or entity with 25% or more ownership interest in the company, or who exercise significant control over the operation of the company.
  • Collect the required information — for each beneficial owner you will usually need their name, date of birth, address, and identification number on some form of government-issued ID.
  • >Report the BOI information to FinCEN using the new prescribed process, making sure all information is complete and accurate.
  • Update the information with FinCEN if there are changes in beneficial ownership.

If you haven’t already, start developing the internal processes for initial and ongoing compliance.

Are There Any Set Deadlines For Reporting?

Business entities that existed prior to the rule change going into effect, January 1, 2024, have until January 1, 2025 to file their BOI disclosures.

New companies created on or after January 1, 2024 but before January 1, 2025 have 90 days, from the date of registration to submit their BOI disclosures.

Subsequently, any new business entity registered on or after January 1, 2025 will have 30 days to file BOI disclosures with FinCen.

Any changes in BOI must be reported to FinCEN within 30 days of the change.

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