By Elizabeth M. Ortloff, CRCM - SVP, Senior Compliance & Audit Officer
Business owners may not yet be aware of a new regulation that took effect at the beginning of the year. But they should be aware because there are stiff penalties for non-compliance. The new rule requires many small business owners and corporations to report specific information by January 1, 2025, to the Financial Crimes Enforcement Network (FinCEN), a bureau within the U.S. Department of Treasury.
A New Regulation to Further Protection Against Financial Crimes in the U.S.
Embezzlement. Identity theft. Bribery. Human trafficking. These are all examples of the financial crimes that occur every year in the U.S. In 2023, fraud losses surpassed $10 billion, with investment scams collectively robbing people of almost $5 billion. It's not known exactly how these laws will keep such crimes in check, but that is the purpose, and we are hopeful for positive outcomes.
Congress passed The Corporate Transparency Act on January 1, 2021 as a means of combating illegal activity, money laundering and the funding of terrorism. As part of this legislation, companies doing business in the United States must provide FinCEN with information about the individuals who own or control these companies. By reporting, owners of businesses and corporations are helping to protect our country’s financial system from crime and corruption. The Beneficial Ownership Information Reporting Rule (BOI), calls for most small businesses to report four pieces of information about each of its beneficial owners: name, date of birth, address and a unique identifying number such as a U.S. driver’s license or U.S. passport. A beneficial owner is someone who exercises substantial control over a company but more specifically, a person who owns or controls at least 25% ownership interest in a company.
BOI reporting isn’t a complicated or drawn-out process; however the more complicated your business structure, the more complex the reporting. I have heard reports from small business owners that the reporting was straight-forward. Business owners can file their report using the BOI E-filing system, and there is no cost. The amount of time it takes for any given company to report all of the necessary information depends on the size and structure of the entity. Further reporting is only required whenever there is a change in business ownership. If this happens, companies must ensure the updated information is filed within the required timeframe. If a company was founded in 2024, there is a different initial BOI reporting rule. Those companies have 90 calendar days after their registration becomes active to report information on beneficial owners.
Why Business Owners Need to Pay Attention to This New Requirement
There are penalties for not reporting on time, so it is crucial business owners get it done. Failing to report on time will result in fees of over $500 a day and in some cases, fines of up to $10,000. Criminal penalties of up to two years imprisonment are also possible.
The Office of the Minnesota Secretary of State emailed all business owners at the beginning of the year with an announcement detailing BOI reporting and has set up an information page for businesses at State of MN – BOI. FinCEN is engaged in an awareness and education campaign to make sure business owners understand the new reporting requirements. However, we are still noticing a lack of awareness among business owners we work with at EntreBank.
As a banking partner deeply invested in providing education and resources to keep businesses informed, our EntreBankers will be proactively reaching out to clients. Please help us spread the word by sharing this with the business owners in your network. If you have questions, you can visit FinCEN’s FAQ section, Small Entity Compliance Guide or their contact page.
