Draft:Beneficial Ownership Information Report

The Beneficial Ownership Information (BOI) report is a key component of financial regulation in the United States, aimed at enhancing transparency and combating illicit financial activities such as money laundering and tax evasion. It requires entities to disclose information about individuals who ultimately own or control them.

Background

The BOI reporting requirement was established as part of the Corporate Transparency Act (CTA), which was enacted to address vulnerabilities in the U.S. financial system. The CTA, signed into law on January 1, 2021, mandates certain entities to file a BOI report with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.

Purpose and requirements

The primary purpose of the BOI report is to identify and disclose the beneficial owners of entities, thereby increasing transparency in corporate structures. Beneficial owners are individuals who directly or indirectly own or control a significant portion of the entity's equity interests or have substantial control over its management.

Entities subject to the BOI reporting requirement include corporations, limited liability companies (LLCs), and other similar entities formed or registered in the United States. Exemptions exist for certain federally regulated industries and entities already subject to substantial reporting requirements.

Filing

Filers have the option to submit their Beneficial Ownership Information (BOI) reports directly on the Financial Crimes Enforcement Network (FinCEN) website. This online portal allows entities to securely enter and submit their BOI data, ensuring compliance with the Corporate Transparency Act. The FinCEN website is designed to guide users through the filing process with user-friendly instructions and support, making it accessible for entities of all sizes to meet their reporting requirements without the need for intermediary services.

To ensure widespread compliance with the Beneficial Ownership Information (BOI) reporting requirements, the Financial Crimes Enforcement Network (FinCEN) has developed a direct API, enabling approved vendors to securely transmit BOI data. This initiative aims to make the filing process as accessible and efficient as possible, increasing the likelihood of timely and accurate submissions. FinCEN has vetted and approved a select group of vendors to use this secure connection for filing BOI reports.

Penalties for failure to file

Individuals who willfully fail to report complete beneficial ownership information can be subject to criminal penalties. The individual can be fined up to $10,000 and imprisoned for up to two years. This applies to situations where an individual willfully provides false or fraudulent beneficial ownership information, or willfully fails to provide complete beneficial ownership information.

In addition, a person who willfully fails to report complete beneficial ownership information may be subject to civil penalties. The individual may be required to pay penalties for willfully failing to report complete beneficial ownership information. Penalties can include being required to pay penalties for willfully failing to report complete beneficial ownership information.

Penalties are applicable when an individual willfully fails to report complete beneficial ownership information or willfully provides false or fraudulent beneficial ownership information. Penalties are not applicable if the failure to report complete beneficial ownership information was not willful.

Challenges in court

SBA vs. Yellen: In May 2021, the US Small Business Administration (SBA) challenged the BOI reporting requirement, arguing that it exceeded the scope of the CTA and imposed undue burdens on small businesses. Treasury Secretary Janet Yellen defended the requirement, emphasizing its importance in combating financial crimes.

The National Small Business United v. Yellen case challenged the constitutionality of the Corporate Transparency Act's beneficial ownership reporting requirements enforced by the Financial Crimes Enforcement Network (FinCEN). On March 1, 2024, the U.S. District Court for the Northern District of Alabama ruled in favor of the plaintiffs, which included the National Small Business Association (NSBA), a small business owner named Isaac Winkles, Winkles' companies, and NSBA members as of that date. The court permanently enjoined the Treasury Department and FinCEN from enforcing the Act against these specific plaintiffs, determining that the reporting rules exceeded Congress' constitutional authority. However, the Justice Department filed a notice of appeal on March 11, 2024, indicating ongoing litigation. While complying with the injunction, FinCEN stated it would continue implementing the Corporate Transparency Act for all other non-exempt entities not covered by the court order. As a result, companies besides the named plaintiffs must still comply with FinCEN's beneficial ownership information reporting requirements, while the NSBA plaintiffs are temporarily exempt pending the appeal's outcome.