The Truth & History Behind BOI Reporting

Examining the history and purpose of BOIR (BOI Reporting) is essential to grasp its significance. BOI, or Beneficial Ownership Information, refers to details about the individuals who ultimately own or control a legal entity. This information is crucial in combating money laundering, terrorist financing, and other illicit activities.

The concept of BOI reporting dates back to the Financial Action Task Force (FATF) recommendations issued in 2012. Although a longstanding body (formed in 1989) of the U.S. Department of the Treasury, the FATF sought to cover issues such as the financing of weapons of mass destruction as trends of national and international terrorism increased in the aftermath of 9/11. The FATF presented 40 such recommendations aimed at increasing transparency and preventing the misuse of legal entities for illegal purposes.

The importance of the FATF's recommendations continued to ring true for financial crimes such as the surge of money laundering, cybercrime, and cryptocurrency scams between 2016 and 2021:

• The Panama Papers leak in 2016, which exposed the use of offshore entities to hide wealth and evade taxes, further highlighted the need for robust BOI reporting. The leak prompted global discussions on improving transparency and cracking down on tax evasion and money laundering. 
• The COVID-19 pandemic catapulted financial crime concerns as it created new opportunities and vulnerabilities. As more people shifted to remote work and online transactions, there was a sharp boost in cybercrime. Cybercriminals exploited the increased dependence on digital platforms by targeting individuals, businesses, and government agencies with phishing attacks, ransomware, and other cyber scams.
• Money laundering also ran rampant with the impact of stimulus packages and emergency funds. Criminals attempted to exploit weak due diligence processes, inadequate controls, and the influx of funds to legitimate businesses and financial systems.
• Cryptocurrency crimes rose to fame after the COVID-19 pandemic, although crypto had its seemingly harmless introduction with Bitcoin in 2009 by an anonymous person or group using the pseudonym Satoshi Nakamoto. Now, fear of cryptojacking and hacking, using crypto on the dark web, money laundering, and illegal crowdfunding for ICOs (Initial Coin Offerings) are among the financial crimes needing regulation.

In response, several initiatives and statutes were introduced, such as the E.U.'s Fifth Anti-Money Laundering Directive (AMLD5), the U.K.'s Persons with Significant Control (PSC) register, the U.S. Corporate Transparency Act (CTA), and the Customer Due Diligence (CDD) Rule. These initiatives aim to establish centralized registers or databases where companies must disclose their beneficial ownership information.

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Overview of FinCEN and its Role in BOI Reporting

The Financial Crimes Enforcement Network (FinCEN) is also a U.S. Department of the Treasury bureau. It plays a vital role in combating financial crimes, including money laundering and terrorist financing. FinCEN collects, analyzes, and disseminates financial intelligence to support law enforcement agencies and regulatory authorities.

As part of its efforts to enhance financial transparency, FinCEN oversees the BOIR requirements. It has developed a secure electronic system for collecting and maintaining BOI information. This system allows covered financial institutions to submit the required reports and comply with their obligations.

Why FinCEN Faced Initial Backlash

As seen in a July 2023 conference hosted by Subcommittee on National Security, Illicit Finance, and International Financial Institutions Chair Congressman Luetkemeyer and Ranking Member Congresswoman Beatty, Potential Consequences of FinCEN's Beneficial Ownership Rulemaking, FinCEN faced backlash as they required an extensive amount of resources to implement an overcomplicated process. Let's discuss some uphill battles FinCEN has to combat:

1. Privacy Concerns: One of the primary concerns raised by critics was the potential invasion of privacy. Collecting and publicly disclosing beneficial ownership information could expose individuals to risks such as identity theft, harassment, or personal safety threats.
2. Administrative Burden: Some argued that the reporting requirements would impose a significant administrative burden on businesses, particularly small and medium-sized enterprises. Compliance with the reporting obligations would require additional time, resources, and expenses, potentially affecting business operations. 
3. Data Security Risks: The storage and management of vast amounts of sensitive data raised concerns about data security and the possibility of unauthorized access or breaches. Critics voiced apprehensions about whether the systems in place would be robust enough to protect the confidentiality of the reported information effectively.
4. Regulatory Overreach: Opponents of BOI reporting raised concerns about government overreach and the potential to misuse or abuse the collected data. They argued that the reporting requirements could infringe on individual rights and create an overly intrusive regulatory environment.
5. Practical Challenges: Some critics questioned the effectiveness of BOI reporting in achieving its intended goals. They argued that determined individuals or entities could still find ways to circumvent the reporting requirements or provide false information, potentially undermining the system's effectiveness.

While there was an initial backlash, many of these concerns have been addressed or mitigated through subsequent revisions, enhancements in data security measures, and the implementation of strict access controls. The aim has been to balance transparency and privacy while effectively combating financial crimes. But is FinCEN ready for BOI reporting in 2024, or should you, like Mr. Jim Richards, Founder and Principal of RegTech Consulting LLC, wait until the end of the year for more proof of readiness?

Deadlines for BOI Reporting

Small businesses must be aware of BOI reporting deadlines to ensure compliance: 

• If your business was created before January 1, 2024, you must report your BOI by January 1, 2025.
• If you registered your business after January 1, 2024, but before January 1, 2025, you have 90 calendar days to file.
• If you registered your business after January 1, 2025, you have 30 calendar days to file.
• You must also update FinCEN within 30 calendar days of any changes to your BOI.

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What happens if I refuse to report my BOI or miss the deadline?

By complying with the established regulations, you can avoid penalties, which vary depending on the jurisdiction. Here are some potential penalties that can be imposed for non-compliance:

1. Monetary Penalties: Businesses that fail to report BOI or provide false or misleading information may be subject to a monetary fine of up to $500 each day the violation continues.
2. Criminal Charges: In some cases, deliberate non-compliance with BOI reporting requirements can lead to criminal charges. This can result in fines (up to $10k), imprisonment (up to 2 years), or both, depending on the severity of the violation.

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BOI Reporting Requirements & Exemptions for Small Businesses

According to the FinCEN CDD Rule, covered financial institutions must collect and verify specific information about the beneficial owners of legal entities.

The required information includes:

• The full legal name of each beneficial owner
• Date of birth
• Current residential or business address
• A unique identifying number from an acceptable identification document. Proper identification documents may include a driver's license, passport, or other government-issued identification.

This new BOI Reporting mandate affects nearly 33.2 million small business owners, but you could be exempt if:

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How to Fill Out a BOI Report

Reporting your BOI is a straightforward process:

1. Visit https://www.fincen.gov/boi
2. Get a FinCEN ID (optional but helpful in streamlining the process). If you skip this step, you can still receive a FinCEN ID during filing.
   a. After creating an account with your email, you'll receive a confirmation link to your email. 
   b. Select a password
   c. Choose a security verification method. Add more than one if you can.
   d. Continue to the U.S. Department of the Treasury and log in with your newly created account.
   e. Fill out the required information, including your name, address, and form of identification.
   f. Get your FinCEN ID.
3. Click the link from the official BOI landing page to file your report using the BOI Filing System.
   a. Click Get Started
   b. Choose whether you want to file online or file via a PDF.
   c. If you're submitting online, run through the tabbed wizard to enter accurate information into all required fields.
   d. This should take you 5-10 minutes at most to complete.
   e. After submission, you'll receive an onscreen status confirmation where you'll be able to download the transcript. Save all the information on this screen.

Check out the images at the end of this article for a screenshot tutorial!

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Tips for Successful BOI Reporting

To ensure successful BOI reporting, small businesses can follow these tips:

1. Stay informed: Keep up-to-date with the latest regulations and guidance issued by FinCEN regarding BOI reporting. This will help you keep up-to-date with any changes or updates that may impact your reporting requirements.
2. Maintain accurate records: Establish a system to collect, verify, and maintain accurate records of the beneficial owners' information. Regularly review and update these records to ensure compliance.
3. Seek professional assistance: For advanced reporting cases, consider hiring a tax specialist or professional service provider with expertise in BOI reporting. They can guide you through the reporting process, help identify and verify beneficial owners, and ensure compliance with the FinCEN CDD Rule.

Conclusion & Further Discussion

BOI reporting helps prevent the misuse of legal entities for illicit activities. By providing accurate and up-to-date information about the beneficial owners, small businesses contribute to the global fight against money laundering, terrorist financing, and other financial crimes. This, in turn, helps maintain a level playing field for honest businesses and protects the overall integrity of the financial system.

Be sure to review FinCEN's FAQ: https://www.fincen.gov/boi-faqs for more information.

What do you think?

‍Will BOI Reporting contribute to a more transparent and secure financial environment by providing law enforcement with the information they need to prosecute, or is supplying BOI simply too un-American?