The Anti-Money Laundering Act of 2020 (AMLA) marks one of the most significant updates to US AML compliance since the Patriot Act. Introduced in 2021, it modernized the framework by amending the Bank Secrecy Act (BSA) and incorporating the Corporate Transparency Act (CTA). The Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of the Treasury, finalized a rule mandating the reporting of Beneficial Ownership Information (BOI) under the CTA.
Currently, regulated entities are required to disclose beneficial owners or all individuals who directly or indirectly have control over an entity, meaning they own or control at least 25% of the company’s ownership interests. This new rule was introduced to help combat money laundering and other possible financial crimes due to regulatory loopholes. Ultimately, the Beneficial Ownership Information reporting rule targets issues such as opaque ownership structures and the misuse of entities like corporations and LLCs, often exploited for fraud and laundering money through shell companies.
Key facts to remember:
- Data. Collecting and verifying details such as legal names, tax ID numbers, addresses, and government-issued identity documents for the business and its beneficial owners is required for BOI reporting.
- Scope. Companies in the US created or registered after 2024 must report beneficial ownership information.
- Deadline. Existing companies must file BOI by January 1, 2025. New businesses are required to comply 90 days from their creation date. In case of lawsuits and other changes that could affect this regulation, visit FinCEN’s website.
In this blog post, we’ll review the key requirements of BOI reporting and what it means for regulated entities that need to follow FinCEN’s rules to stay compliant.
What is Beneficial Ownership Information?
Beneficial Ownership Information (BOI) is a set of data that consists of individuals who directly or indirectly own or control a company. Identifying and verifying beneficial owners is a mandatory requirement to help companies understand who they’re doing business with. It also assists in defining Anti-Money Laundering (AML) risks and tailoring decisions based on the company’s risk tolerance.
BOI helps companies:
- Maintain trusted, transparent business relationships with genuine businesses and their owners.
- Understand AML risks better and identify factors like high-risk jurisdictions (with higher rates of money laundering) or high-risk individuals, such as Politically Exposed Persons (PEPs) or sanctioned individuals.
- Monitor companies and apply proper due diligence measures while detecting entities that fall outside of the business’ risk tolerance (so that the business relationship can be ended).
The BOI reporting rule requires that companies disclose this information, including the identity of beneficial owners or simply people behind the company. This is also part of the Know Your Business (KYB) framework, which requires you to assess and verify another company’s ownership structure before entering a new business relationship. BOI is important because it improves transparency and focuses on minimizing fraud on a bigger scale (instead of just focusing on individual clients).
What is a Beneficial Owner?
A beneficial owner is an individual who holds a stake in a corporation or legal entity, often owning 25% or more of a company (for example, a senior officer). Beneficial owners have substantial control and can vote and influence decisions related to transactions involving that property or asset. For instance, a corporate shareholder is considered a beneficial owner and can vote on company shares.
This concept is commonly used in financial assets, real estate, and corporate structures to identify the true owner behind the nominal owner. Beneficial ownership applies to those who own or control an interest in a legal entity or arrangement (such as a company, foundation, or trust).
Related: Ultimate Beneficial Owner (UBO) — Verification Guide
What is “Substantial Control”?
According to FinCEN, a person who exercises substantial control over a company is someone who fits the following criteria:
- The person is a senior officer (such as the company’s president, chief executive officer, chief financial officer, general counsel, or chief operating officer, and similar senior roles).
- The individual is an important decision-maker for the reporting company.
- The person has the authority to appoint or remove certain officers or a majority of the company’s directors.
- The individual has any other form of substantial control over the company (more details are explained here).
What is the Role of FinCEN Here?
The Financial Crimes Enforcement Network (FinCEN) provided new rules that require reporting companies (corporations, limited liability companies, and similar entities) to submit reports containing beneficial ownership information to them.
The BOI that needs to be reported includes:
- The full legal name, date of birth, current residential or business address.
- A unique identifying number from an acceptable identification document or a FinCEN identifier.
The reporting requirements apply to both new entities and existing entities, with different timelines for submission depending on the effective date of the regulations.
Who Can Access Beneficial Ownership Information?
Under the Corporate Transparency Act, FinCEN allows access to beneficial ownership information for:
- Financial institutions and other regulated entities that need to comply with customer due diligence requirements under applicable law.
- Regulators and regulatory agencies that supervise or assess financial institutions with access to beneficial ownership information.
- Foreign law enforcement agencies, including prosecutors, judges, and similar authorities.
- Federal agencies that are linked to national security, law enforcement, or intelligence.
- State, local, and Tribal law enforcement agencies (with court authorization).
- Officials at the Department of Treasury.
For regulated companies that are legally required to report beneficial ownership information, details like the entity’s legal name, address, and TIN number (or EIN, depending on the jurisdiction) are required.
For individuals — company applicants or beneficial owners — legal name, date of birth, address, government-issued ID number, and a copy of that ID document are required.
What Companies are Required to Report Beneficial Ownership Information?
According to FinCEN’s beneficial ownership information reporting rule, there are two types of companies that need to comply:
- Domestic reporting companies (limited liability companies, corporations and other entities that are created through filing with the Secretary of State).
- Foreign reporting companies (the same entities, but formed under foreign laws and registered to do business in the US).
Examples of Companies that are Exempt from the BOI Reporting Requirements
Certain businesses are exempt, such as publicly traded companies meeting specific requirements, some nonprofits, and some large operating companies. For example, a company qualifies for this exemption if it has at least 20 full-time employees and more than $5 million in gross receipts or sales (which are measured net of allowances as reported on tax returns, and operates from a physical office within the US.
The full list is provided by FinCEN and consists of the following companies:
- Securities reporting issuer
- Governmental authority
- Bank
- Credit union
- Depository institution holding company
- Money services business
- Broker or dealer in securities
- Securities exchange or clearing agency
- Other Exchange Act registered entity
- Investment company or investment adviser
- Venture capital fund adviser
- Insurance company
- State-licensed insurance producer
- Commodity Exchange Act registered entity
- Accounting firm
- Public utility
- Financial market utility
- Pooled investment vehicle
- Tax-exempt entity
- Entity assisting a tax-exempt entity
- Large operating company
- Subsidiary of certain exempt entities
- Inactive entity
In general, the BOI reporting rule is extensive, affecting local US-based businesses and international businesses operating in the US.
Why is BOI Reporting Important?
Accurate beneficial ownership data makes it harder for criminals to hide and profit from opaque ownership structures. According to FinCEN, the BOI reporting law introduces new requirements that will help prevent illicit activities like money laundering using shell companies or concealing the identities of the company’s true owners.
This is important, as, for example, without access to beneficial ownership information, identifying patterns of an illicit shell company and its risks can be challenging and time-consuming.
We look into more detail below.
Maintaining Regulatory Compliance
Regulated entities must conduct due diligence, and beneficial ownership information reporting is part of it. For example, FinCEN’s CDD Final Rule clarifies and strengthens customer due diligence requirements for banks, mutual funds, brokers, or dealers in securities, requiring these and other regulated institutions to identify and verify the identity of beneficial owners who own, control, and profit from companies when those companies open accounts.
BOI reporting and BSA amendments like the CDD Final Rule were introduced in response to the Panama Papers scandal, which exposed large-scale money laundering schemes involving shell companies, offshore accounts, and other illicit activities linked to companies and their notoriously poor AML measures and hidden ownership structures.
Paying Attention to Risk Factors
Reviewing beneficial ownership information is also important in the context of different use cases, like governments issuing export licenses or approving loans and contracts, including other cases like businesses managing third parties, depending on the company’s internal risk assessment and risk appetite. The risk analysis should be supported by documenting key risks and how they relate to the business. This typically begins with identifying the types of clients the company works with.
Other risk indicator examples that should be assessed:
- Clients seeking anonymity
- Clients involved in cash-based businesses
- Clients outside the company’s typical customer base
For example, PEPs and professional service providers are considered higher risk and should be verified and screened to ensure they are not on any sanctions lists. So, applying the right due diligence measures and maintaining compliance with beneficial ownership information reporting requirements is vital, as non-compliance can result in civil and criminal penalties.
Related: The Main KYB Risk Factors You Should Know
How and When Do Companies Need to Report BOI?
Reporting companies are required to submit their beneficial ownership information to FinCEN through an online filing system (launched on January 1, 2024). An employee, owner, or third-party service provider is authorized to file a BOI report on the company’s behalf. Details like basic contract information and their email and name are required, including certifying that the submitted information is correct and complete.
Keep in mind that any changes to previously reported BOI must be updated and reported to FinCEN within 30 days. Reporting to FinCEN is free.
The deadlines for reporting BOI differ. For example:
- Companies created or registered between January 1, 2024, and January 1, 2025, have 90 days from their creation to file their initial reports.
- Reporting companies created or registered before January 1, 2024, must file their initial BOI reports by January 1, 2025.
- For companies created or registered on or after January 1, 2025, the deadline is 30 calendar days from the date their registration becomes effective.
🔴 However, recently (last updated in December 2024), FinCEN has informed about a federal court order, which changed the deadlines. Currently, exporting companies are not required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. Voluntary submitting beneficial ownership information reports is acceptable.
The government’s motion to stay the preliminary injunction suggests its commitment to maintaining the reporting deadline of January 1, 2025. As a result, if you’re a company that’s subject to BOI reporting, you should continue preparing to comply with the CTA and FinCEN’s BOI reporting requirements.
For further information, check the news on FinCEN’s website.
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