Importance of Beneficial Ownership Information Reporting
The reason why the business world is struggling to deal with fraud challenges is the lack of accurate beneficial ownership information. Money launderers, criminals, and politically exposed persons PEPs are concealing their identity and getting the benefits of being the beneficial owners of the company. Hence, this implies that the existence of the company’s operations and its reputation is under threat following the unlawful activities of the beneficial owner. Financial Crimes Enforcement Network (FinCEN) is a legal entity in the United States of America that requires business entities to provide information on beneficial owners to prevent the occurrence of unlawful incidents. A company has to understand the importance of beneficial owners’ information and its potential in reporting fraud.
What is a Beneficial Ownership Report?
A beneficial ownership information report is a record of details about a company’s beneficial owners. The recent updates enforced in 2021 include the introduction of the Corporate Transparency Act, which introduced new beneficial ownership reporting requirements. The BOI reporting hinders the beneficial owner from concealing his/her identity in shell companies since the legislation targets those involved in such activities. The beneficial owner is the person or group in the company that owns 10 to 25 percent of the share of the enterprise.
BOI Reporting Rule
BOI reporting rule requires any company incorporated after the 1st of January, 2024, to provide the beneficial ownership information to FinCEN. By the end of this year, the established company, in compliance with the required date, will need to state beneficial owners’ information by January 1st, 2025. The registered company that obtains the beneficial ownership information reporting notice obtains it within 90 calendar days. Business entities that are incorporated after 1 January 2025 have to submit the first BOI report to FinCEN within 30 calendar days. In short, CTA made beneficial owners’ information reporting a mandatory part of the US government in the fight against criminals using shell companies or invalid ownership structures.
Non-filing BOI Reporting Penalties
A company that has not filed beneficial owner reporting faces legal consequences, which are fines and sanctions. The company shall be liable for civil or criminal penalties if the beneficial owner’s information is incomplete or not updated. The civil penalty is equal to $500 per day for a violation, and the criminal penalty is not more than $10,000. Some of the criminal penalties are as follows: fines or two years imprisonment. It is mandatory for the company to provide the ‘beneficial owners’ information in order to escape civil and criminal repercussions, and the filing of this report must be done within 90 calendar days.
Benefits of Beneficial Ownership Reporting
There are several benefits of beneficial ownership information, and a few of them are discussed in detail:
- Monitor Compliance Obligations
A beneficial owner is a person with an interest in the company’s assets, though as the ultimate beneficial owner, or UBO, the individual holds at least a 25% stake. When it comes to the question of compliance obligation, it is obligatory for both entities to be compliant with laws and regulations. The beneficial owner information reporting enables the business to find out whether he complies with the AML and CTF regulations. However, the beneficial owners of which the company fails to meet the required obligations are the ones who will be exposed to risk and threats. The risks that can be potentially related to beneficial owners are considered and revealed using beneficial ownership reporting systems.
- Transparency in Financial Relations
The chance that such a person is involved in illegal actions increases when the data of the beneficial owner of the company is missing or fake. The business partners of that company were exposed to fraud, crimes, or sanctions. With help of the BOI reporting, the beneficial owners are verified, thus, the financial risks are minimized. Such reporting in the long run assists in developing openness in financial relationships among businessmen.
- Reputation Building
Most fraud cases occur in the business sector due to the misuse of the identity of the beneficial owner. When the company testifies to a bond with the partner, offering incorrect or insufficient data concerning beneficial owners, it is at risk all the time. A black money case may appear, which damages the business’s financial and image. Consequently, those that are badly reputed are usually not taken in by companies because this is a threat to their image.
Final Words
FinCEN requires beneficial ownership information, including the name and physical address of each beneficial owner, the contact number, a copy of the license, and the passport ID. The beneficial owner is the only one who may produce information about his or her and other personal and professional data. Thus, beneficial ownership reporting is a vital procedure that ensures that criminal financial conduct does not affect businesses. Beneficial ownership information reports retain the legal status of the company that files them and their upscale reputation.
