New FINCEN Requirement: What Business Owners Need to Know

The Financial Crimes Enforcement Network (FINCEN) has introduced new regulations that will impact business owners across the United States. These changes are part of an ongoing effort to enhance financial transparency and combat illicit financial activities. As a business owner, it is crucial to understand these requirements to ensure compliance and avoid potential penalties. Here’s a breakdown of what you need to know.

Background

FINCEN, a bureau of the U.S. Department of the Treasury, plays a pivotal role in safeguarding the financial system from unlawful use, combating money laundering, and promoting national security through the collection, analysis, and dissemination of financial intelligence. The new requirement, effective from January 1, 2024, mandates more detailed reporting from businesses, particularly focusing on beneficial ownership information.

What is Beneficial Ownership?

Beneficial ownership refers to individuals who ultimately own or control a company. Under the new rule, businesses must report information about the following:

• Beneficial Owners: Individuals who, directly or indirectly, own 25% or more of the company's equity interests, or who exercise substantial control over the company.

• Company Applicants: Individuals who file the formation documents for a company or register it to do business.

Key Requirements

• Reporting Obligations: Businesses are required to file beneficial ownership information with FINCEN. This includes providing names, birth dates, addresses, and unique identifying numbers from acceptable identification documents (e.g., passport or driver’s license).

• Timeline for Reporting:

  • Existing Businesses: Businesses formed before January 1, 2024, must report their beneficial ownership information by December 31, 2024

  • .New Businesses: Businesses formed after January 1, 2024, must file this information within 30 days of their formation or registration.

• Updates: Businesses must update their beneficial ownership information within 30 days of any change.

Impact on Business Owners

• Increased Compliance Costs: Business owners may face additional administrative burdens and costs associated with gathering, verifying, and reporting the required information.

• Enhanced Transparency: While this requirement aims to deter illegal activities such as money laundering and tax evasion, it also means greater transparency regarding who controls and benefits from U.S. businesses.

• Penalties for Non-Compliance: Failure to comply with these reporting requirements can result in significant penalties including fines, currently $591 per day, and potential criminal charges.

Steps to Ensure Compliance

1. Identify Beneficial Owners: Start by identifying all individuals who meet the criteria for beneficial ownership and ensure their information is accurate and up-to-date.

2. Prepare Documentation: Collect and verify all necessary documents and information required for reporting.

3. Consult Professionals: Engage legal and financial advisors to ensure you fully understand the requirements and are prepared to comply.

4. Monitor Changes: Implement a system to monitor and report changes in beneficial ownership promptly.

Conclusion

The new FINCEN requirement represents a significant shift towards greater financial transparency and accountability. While it introduces new compliance obligations for business owners, it also strengthens the integrity of the financial system. By understanding these requirements and taking proactive steps to comply, business owners can avoid penalties and contribute to a more transparent and secure financial environment.

Stay informed, stay compliant, and ensure your business is prepared for these new reporting obligations. For more detailed information, see the Small Entity Compliance Guide or visit the FINCEN website. You can also reach out to Monotelo Advisors to prepare the filing for your signature. Monotelo is planning to complete our clients' filings in the month of August.