Significance of Beneficial Owners Information Reporting to FinCEN

The business world is facing fraud challenges because of invalid or missing beneficial owners information. The money launderers, criminals, and politically exposed person PEPs are hiding their identities and taking the perks of being beneficial owners in the company. The beneficial owners hold a significant amount of the company’s assets, so their role is also crucial. Therefore, the beneficial owner's involvement in illegal activities is threatening the company’s operations and reputation. Financial Crimes Enforcement Network (FinCEN) is a legal body in the US that asks businesses to report information on beneficial owners to combat crimes and illegal activities. A company must understand the importance of beneficial owners information and its reporting to prevent fraud. 

What is a Beneficial Ownership Report?

In 2021, the Corporate Transparency Act (CTA) was passed by Congress, establishing new requirements for reporting beneficial ownership information (BOI) in the US. The primary goal of modified requirements is to enhance security measures against illegal activities. The beneficial owner finds obstacles in hiding their identities in shell companies because of the BOI reporting. The beneficial owner is the person or group in the company which holds 10 to 25% of the company’s assets. 

Which Companies Should Report BOI?

The companies established on or after January 1, 2024, must file beneficial owners information reports to  FinCEN. The established company, according to the required date, will have to report its beneficial owners information by January 1, 2025. The company that is registered once receives the notice of BOI reporting in 90 calendar days. Companies created on or after January 1, 2025, must file the initial BOI report with FinCEN within 30 calendar days. In short, CTA created beneficial owners information reporting mandatory part of the US government to combat criminals hiding identities in shell companies or invalid ownership structures.  

Risks of Non-filing BOI Reporting

If a company fails to file beneficial owner reporting, it will face severe legal consequences, including penalties and sentences. The company failing to provide complete and updated beneficial owners information will face civil or criminal penalties. The civil penalty is up to $500 for each day of willful violation and up to a $10,000 fine for criminal penalties. In some cases, criminal penalties include two years imprisonment. In order to avoid civil and criminal penalties, the company must file a report of beneficial owners information within 90 calendar days.   

Benefits of Beneficial Ownership Reporting

There are several benefits of beneficial ownership reporting, but few of them are discussed in detail:

• Monitor Compliance Obligations 

In the business world, there is a difference between the beneficial owner and the ultimate beneficial owner of the company. The beneficial owner is an entity that holds a share in the company’s assets; however, the ultimate beneficial owner, UBO, is an entity that has a minimum of 25% of the share. When the question of compliance obligation comes, it is mandatory for both sorts of entities to comply with laws and regulations. The beneficial owner information reporting helps to determine whether he complies with AML and CTF regulations. However, the beneficial owners of which company fail to comply with obligations are exposed to risk and threats. The potential risks associated with beneficial owners are identified through beneficial ownership reporting requirements.

• Transparency in Financial Relations

When the beneficial owner information of the company is missing or invalid, there is a high chance that he may be involved in illegal activities. The business partners of that company are threatened by fraud, crimes, and sanctions. In the BOI reporting, the beneficial owners are verified, so the financial risks are reduced. This reporting eventually helps build transparent financial relations among business owners.      

• Reputation Building 

Usually, fraud cases occur in the business world because of the identity theft of beneficial owners. When the company makes a bond with the partner, providing invalid or missing information about beneficial owners, it is constantly prone to risk. The black money case may appear, which negatively affects not only the bottom line of the business but also its reputation. As a result, businesses are hesitant to onboard badly reputed companies because it is a threat to their reputation. 

Final Words

FinCEN requires a report of beneficial owners, including their name, physical address, contact number, copies of license, and passport ID. Only the verified beneficial owners are qualified to provide information on their personal and professional details. Beneficial ownership reporting is an important procedure to keep financial crimes away from businesses. BOI reporting is not only necessary for legal compliance but there are several benefits of BOI reporting to the legal authorities. The company that files beneficial owner reports is considered legitimate, and its reputation is upscale in the market.