I usually write about mortgage or real estate professionals, but since I teach Anti-Money Laundering classes, I thought it would be helpful for all small businesses to know what’s coming.
On September 18, 2023 the Financial Crimes Enforcement Network (FinCEN) published the final rules for the new Corporate Transparency Act (CTA).
These rules become effective January 1, 2024 and in typical government practice, there is a Small Entity Compliance Guide.
This new law is related to anti-money laundering (AML) under the Bank Secrecy Act (BSA) and applies to EVERY type of non-exempt domestic or foreign business that employs less than 20 employees. So…most small businesses.
Beneficial ownership interest rules are fundamental components of the global effort to combat money laundering, tax evasion, and other illicit financial activities.
These rules are intended to pierce the veil of complex corporate structures and trusts to identify the real individuals who own, control, or benefit from these entities.
How is Beneficial Owner defined?
Any individual who directly or indirectly:
- exercises substantial control over the reporting company; OR
- owns or controls 25% of the ownership interests of the reporting company.
A reporting company can have multiple beneficial owners. For example, a reporting company could have one beneficial owner who exercises substantial control over the reporting company, and a few other beneficial owners who own or control at least 25 percent of the ownership interests of the reporting company. Likewise, a reporting company could have one beneficial owner who both exercises substantial control and owns or controls at least 25 percent of the ownership interests of the reporting company. There is no maximum number of beneficial owners who must be reported.
The CTA requires the disclosure of the Beneficial Ownership Interest (BOI) to the Financial Crimes Enforcement Network (FinCEN).
You might be asking “is this really necessary?” Do we need another federal agency getting into people’s businesses?
Beneficial ownership interest rules are fundamental components of the global effort to combat money laundering, tax evasion, and other illicit financial activities. These rules are intended to pierce the veil of complex corporate structures and trusts to identify the real individuals who own, control, or benefit from these entities.
The main purposes of these rules include:
- Transparency: Many illicit actors use complex corporate structures, trusts, or other legal entities to hide their identities and the true source of their funds. Beneficial ownership rules require these entities to disclose the real individuals behind them, thus bringing clarity to otherwise opaque structures.
- Preventing Money Laundering: Money laundering makes illegally-gained proceeds appear legitimate. By tracking the beneficial ownership of assets, authorities can trace the flow of illicit funds and prevent or detect money laundering schemes.
- Combatting Tax Evasion: Beneficial ownership rules can help tax authorities identify individuals who might be using complex corporate structures or offshore entities to evade taxes.
- Counter-Terrorism Financing: Understanding the real owners of assets can help authorities track and halt the flow of funds to terrorist organizations.
- Holding Criminals Accountable: When authorities can identify the real individuals behind illicit activities, they can prosecute and hold them accountable.
- Promoting Fair Business Practices: Transparency in business structures can help ensure fair competition, preventing businesses from gaining unfair advantages through concealed ownership or undisclosed conflicts of interest.
- Protecting the Financial System’s Integrity: The integrity and stability of the global financial system relies on transparency and trust. Curbing illicit financial flows and activities helps maintain confidence in the system.
Review the BOI Small Entity Business Guide to determine if this applies to you or if your company is exempt. There is a series of questions to determine if you are a beneficial owner.
It defines “substantial control” as well as “ownership interest. Think of all the small LLCs, partnerships and “S” corporations that have under 20 employees.
If this is you, you may need to report to FinCEN.
I highly recommend you review the guide to determine if your entity is required to report so you don’t miss the deadline.
- Reports will be accepted starting on January 1, 2024.
- Reporting companies created or registered to do business before January 1, 2024, will have more time (until January 1, 2025) to file their initial BOI reports.
- Reporting companies created or registered on or after January 1, 2024, will have 30 days after receiving notice of their company’s creation or registration.
Where can I find additional information about BOI reporting?
- Additional information about the Reporting Rule and guidance materials are available at www.fincen.gov/boi.
- FinCEN has issued and will continue to issue frequently asked questions to address specific questions on the topic. They can be found here: www.fincen.gov/boi-faqs.
- In addition, if you have any questions regarding BOI reporting obligations, you should contact FinCEN at www.fincen.gov/contact.
It is highly recommended that you consider your small business entity’s reporting requirements.
Cloes.online is an online education provider who will be offering training for all small businesses. For more information email: email@example.com or call 866-256-3766.
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