The Corporate Transparency Act requires companies to report beneficial ownership information to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). FinCEN opened an online portal to begin accepting reports in January 2024. Financial advisors who fail to meet Corporate Transparency Act reporting requirements may face penalties.
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What Is the Corporate Transparency Act?
The Corporate Transparency Act is a bipartisan effort to curb illicit financial activity. The Act requires reporting companies to share information about beneficial ownership with FinCEN. The Act defines beneficial owners as individuals who directly or indirectly:
- Exercise substantial control over a reporting company,
- Or own or control at least 25% of the reporting company’s ownership interests.
Congress introduced the Act to strengthen anti-money laundering regulations. The Corporate Transparency Act reporting requirements are intended to prevent money laundering and the financing of terrorist activities.
Who Does the Corporate Transparency Act Apply To?
Reporting companies, which include financial advisors, must share beneficial ownership information (BOI) with FinCEN. There are two types of reporting companies: domestic and foreign.
Domestic reporting companies are corporations, limited liability companies and other entities that are created by filing registration or formation documents with a secretary of state or similar office. Foreign reporting companies are formed under the laws of a foreign country, but are registered to do business in the U.S.
There are some exemptions. The following entities are not subject to reporting rules:
- Securities reporting issuers
- Governmental authorities
- Banks and credit unions
- Depository institution holding companies
- Money services businesses
- Brokers or dealers in securities
- Securities exchange and clearing agencies
- Other Exchange Act registered entities
- Investment companies or investment advisers
- Venture capital fund advisers
- Insurance companies
- State-licensed insurance providers
- Commodity Exchange Act registered entities
- Accounting firms
- Public utilities
- Financial market utilities
- Pooled investment vehicles
- Tax-exempt entities
- Entities assisting tax-exempt entities
- Large operating companies
- Subsidiaries of certain exempt entities
- Inactive entities
Investment companies and investment advisers are exempt if both of the following are true.
1. The entity is an investment company or investment adviser defined as either:
- An investment company in section 3 of the Investment Company Act of 1940,
- Or an investment advisor in section 202 of the Investment Advisers Act of 1940.
2. The entity is registered with the Securities and Exchange Commission under either of these authorities:
- The Investment Company Act of 1940,
- Or the Investment Advisers Act of 1940.
Again, both must apply for an advisor to qualify for an exemption. Broker dealers can be exempt if they meet the definition of a broker or dealer under section 3 of the Securities Exchange Act of 1934 and are registered under section 15 of the Act.
Corporate Transparency Act Reporting Requirements
Companies subject to Corporate Transparency Act reporting requirements must provide beneficial ownership information to FinCEN. Reporting is required one time only unless information later needs to be updated or corrected.
There are four pieces of information FinCEN requires for each beneficial owner:
- Name
- Date of birth
- Address
- Valid identification number from a U.S. driver’s license or U.S. passport, or identification document issued by a state or local government or Indian tribe
If you don’t have any of these documents, you can substitute a non-expired foreign passport as proof of identity. Reporting entities must also provide the name of the entity, its taxpayer identification number and its address.
How to Report BOI to FinCEN
All of the necessary information can be submitted through the FinCEN Beneficial Ownership Information e-filing system. There are three ways to file a report:
- PDF (Adobe Reader is required)
- Online
- System-to-system API
The report has four sections you’ll need to complete: filing information, reporting company information, company applicants and beneficial owners. The online version of the form has built-in guidance to walk you through the information you need to enter and where it goes.
You’ll have an opportunity to review the information you’ve entered before submitting. Once you submit your form, you’ll be able to download a transcript copy for your records.
If you need to correct or update a previously submitted form, you can do that through the same portal. You can notify FinCEN if there’s been a change in your entity’s status from non-exempt to exempt since your initial filing.
Penalties for BOI Reporting Violations
Financial advisors and other reporting companies may face penalties for failing to provide beneficial ownership information. If FinCEN determines that the failure to report was willful or an attempt to provide false or fraudulent information, advisors may face:
- Civil penalties of up to $500 per day for each day that the violation continues,
- Or criminal penalties, including up to two years imprisonment and/or a fine of up to $10,000.
Penalties may be adjusted for inflation. Both individuals and corporations can be held liable for violating the Corporate Transparency Act reporting requirements, so advisors need to understand when they’re required to file a report and the time limit for doing so.
Frequently Asked Questions
Who Has Access to FinCEN BOI?
FinCEN only allows certain entities to have access to BOI data, including:
- Federal, state, local and tribal officials
- Certain foreign officials who submit a request through a U.S. federal government agency
- Financial institutions, with the consent of the reporting company
FinCEN stores beneficial ownership reports in a secure, non-public database with security controls similar to those used by the government to protect sensitive, non-classified information.
Is There a Fee to File a FinCEN BOI Report?
FinCEN does not charge a fee to report beneficial ownership information. Advisors can upload the necessary information through the FinCEN BOI reporting portal. Third-party companies can assist advisors with reporting, though they typically charge a fee for this service.
What Is the Purpose of FinCEN BOI?
FinCEN BOI reporting requirements enable the creation of a database that’s accessible to government agencies, including law enforcement agencies, which can be used to detect money laundering or terrorist financing activity. The Corporate Transparency Act authorizes FinCEN to collect and maintain this information.
Is BOI Mandatory?
BOI reporting is mandatory unless you qualify as an exempt entity. There are 23 categories of exempt entities, including investment companies and investment advisers who meet certain requirements.
Bottom Line
If you’re not an exempt advisor, you’ll need to adhere to Corporate Transparency Act reporting requirements. Fortunately, the reporting process is designed to be as painless as possible for companies that are required to submit beneficial ownership information.
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