In a stride towards combating financial crimes, the US introduced the CTA, designed to peel back the layers of secrecy often associated with business entities.
According to Moody’s, the Act mandates that companies disclose their beneficial owners to the FinCEN, targeting a reduction in illicit activities like money laundering, fraud, and terrorism financing.
September 2022 marked a pivotal moment as FinCEN finalized a rule on reporting beneficial ownership information (BOI), requiring numerous business entities to start submitting their ownership data. This new mandate came into effect on January 1, 2024, with FinCEN starting to accept reports.
Understanding beneficial ownership is crucial. It includes information about individuals who either directly or indirectly control a company. This data is vital for businesses to ensure they are interacting within their risk tolerance and engaging with reputable entities. The transparency aids in gauging risk exposure related to high-risk jurisdictions or individuals and facilitates the management of relationships that fall outside acceptable risk levels.
The importance of having accurate beneficial ownership information cannot be overstated. It complicates the ability for wrongdoers to obscure illicit gains behind opaque corporate structures, such as shell companies. For financial institutions, collecting this information is not just part of due diligence but a regulatory requirement. It is equally vital for governments issuing licenses or contracts and businesses managing third-party risks. Without this data, assessing and mitigating risks effectively is nearly impossible.
FinCEN defines “substantial control” as individuals who hold significant influence over a company, whether through decision-making roles or other substantial control forms. This includes senior officers like the CEO or CFO, individuals with the power to appoint or remove senior figures, or anyone with significant influence over corporate decisions.
Who needs to file BOI? The rules apply to both domestic entities, such as corporations and LLCs formed in the US, and foreign entities registered to operate within the US. Some entities, like publicly traded companies and certain nonprofits, are exempt. However, the reach of this legislation affects countless businesses globally that operate in the US.
Regarding access to this information, it’s reserved primarily for national security, intelligence, and law enforcement purposes. Authorized federal, state, local, and tribal officials can view BOI, and under specific conditions, financial institutions can too, with consent from the reporting entities.
Entities required to file BOI need to submit their reports electronically through FinCEN’s BOI E-Filing system. Newly formed or registered companies from 2024 onwards have specific deadlines based on their registration date, while those existing before 2024 have until January 1, 2025, to file their initial reports. Updates to ownership or control details also require timely reporting.
The consequences for non-compliance are stringent. Violations can attract daily fines and, in severe cases, criminal charges including imprisonment. Companies have a 90-day window post-deadline to correct any mistakes or omissions, highlighting the stringent enforcement of this regulatory framework.
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