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Navigating The Complexity of Ownership From The Lens of Sanction By Extension

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BOI Reporting: Mitigating Non-Compliance Challenges in Corporate World

15 June, 2024

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The US Congress legislated the Corporate Transparency Act on January 1st, 2024. This act is also an integral part of the National Defense Authorization Act. The primary aim behind CTA was to bring significant reforms to Anti-Money Laundering (AML) regulations. The legislation requires companies in the US to provide specific details regarding the structure of their business ownership to the Financial Crimes Enforcement Network (FinCEN). These details must include beneficial ownership information reporting (everything related to the ultimate ownership structure of the company), and the act involves approximately 32 Million companies, including Limited Liability Companies (LLC), corporations, and financial institutions. Therefore, every organization must have in-depth knowledge of BOI reporting. Read this article to discover everything about Beneficial Ownership Information Reporting.

What is BOI Reporting?

Beneficial Ownership Information refers to the details regarding the ownership status of a company. The data includes everything from the individual who runs and operates the company to the ultimate beneficial owner details. Nevertheless, the primary objective behind the BOI reporting legislation is to counter illegal movements by fraudsters globally. However, this CTA legislation particularly helps mitigate challenges, including money laundering, financial fraud, human and drug trafficking, and other corporate frauds.

In fact, BOI reporting simply makes it challenging for imposters to carry out illicit corporate and financial crimes. Nevertheless, it can also penalize small businesses that don’t comply with legal requirements and stay unaware of specific industry regulations.

BOI Reporting Requirements for Companies

As per the beneficial ownership regulation, a reporting company has to submit general and business ownership information to the Financial Enforcement Network (FinCEN). This applies to any and every business that falls under the classification of a ‘reporting company.’ Nevertheless, here’s how to figure out if you’re a reporting company:

  • Domestic Companies

Domestic companies are to be defined as structured companies or corporations, including LLCs or other entities developed by submitting a document to the USA’s secretary of state or a comparable authority. 

  • Foreign Entities

Foreign entities refer to a set of companies created under the legislation of foreign countries. These organizations are allowed to conduct business activities in any state and jurisdiction.

Who is Exempted from BOI Reporting Requirements?

While BOI reporting legislation requires companies to submit ownership details to FinCEN, the regulation doesn’t hold every business obliged under the Reporting Regulation. In fact, businesses are only required to report when they meet the definition of the Reporting Rule regarding “reporting company,” as mentioned above, and are categorically eligible for exemption. 

The Report Regulation exempts 23 particular types of businesses from reporting. Businesses and entities falling under these categories are not required to file their ownership details to FinCEN under the Corporate Transparency Act.

23 Entities Exempted from the Reporting Rule

Who is A Beneficial Owner?

A beneficial owner is primarily an individual who holds substantial control and authority over the business operations of a reporting company directly or indirectly. However, to exercise significant control over a reporting entity or LLC, an individual has to meet this specific set of criteria, which is as follows:

  • The person is a senior director or an officer
  • He or she possesses the authority to remove or appoint certain officers or employees (sometimes majority officers and directors of the reporting company)
  • The individual holds the authority over the company’s decision-making
  • The person has any additional significant influence on the reporting company

It’s not necessary to possess shares in the reporting corporation. The number of people who may be regarded as having significant influence over a reporting firm is also unrestricted. In addition, an individual may significantly control a reporting company either directly or indirectly via agreements, understandings, contracts, intermediate companies, or other connections. Anybody who, directly or indirectly, owns or controls at least 25% of the ownership interests in a reporting firm is also a “beneficial owner.” 

Access to BOI under the Corporate Transparency Act

Beneficial ownership information may be accessed by authorized agencies under the Act for reasons of national security, intelligence, and enforcement of laws. These organizations include federal, state, municipal, tribal, and predicted international authorities. Financial organizations may also be able to obtain some information by submitting businesses’ permission. Notwithstanding the potential benefits for other organizations and entities to get this data for risk prevention and due diligence, its availability is not universal.

Insightful Fact: FinCEN projects that more than 32 million businesses will need to report Beneficial Ownership Information within the first year of the program.

Deadlines and Requirements of BOI Reporting

Businesses are obligated to electronically submit their beneficial ownership information to the FinCEN website using a secure filing system that may be accessed. Beneficial owners’ information includes names, DOBs, residences, and identification numbers from government-issued documents like driver’s licenses or passports. The reporting company’s employees, owners, or third-party service providers, with the necessary permission, may submit the report. In order to submit beneficial ownership information, FinCEN established the BOI E-Filing website on January 1, 2024.

  • Prior to January 1, 2024, any reporting firm that was established or registered to conduct business has until January 1, 2025, to submit its first BOI report.
  • As soon as real or public information is received that a reporting firm is founded or registered in 2024, the business has 90 calendar days to file.
  • 30 calendar days will be allotted to every reporting firm that is formed or registered on or after January 1, 2025, so long as they are given real or public notice that their formation or registration is effective.

In addition, if a company’s ownership or control changes, they must also notify FinCEN within the same period.

How The KYB Can Help

As the trends of financial and corporate fraud continue despite technological and regulatory advancements at the international level, the Corporate Transparency Act’s BOI reporting framework serves as a proactive approach. The legislation helps US authorities to ensure transparency and accountability in the challenging corporate world. Therefore, it is now more crucial than ever for entities to stay diligent in understanding and meeting necessary requirements. 

The KYB, as the world’s most extensive data source and corporate verification service provider, facilitates businesses with extensive screening. With its extensive database across 300 M+ companies, our Know Your Business solution unfolds complex corporate ownership structures and verifies ultimate beneficial owners while helping ‘reporting companies’ ensure regulatory compliance.

Contact The KYB experts today to discover more about how our corporate verification experts can help you access BOI information and ensure effective risk management.

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