Do You Know Your Customers’ Owners?
The federal government may soon require your financial institution to verify the identity of your customers and their owners. In September, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a final rule that mandates reporting beneficial ownership information (BOI) as part of the Corporate Transparency Act (CTA). This rule aims to shed light on who truly controls and owns companies operating in the United States.
Who Qualifies as a Beneficial Owner?
Under the new regulations, a beneficial owner is defined as an individual who directly or indirectly owns or controls at least 25% of a company registered to do business in the U.S. Alternatively, it can be someone exercising “substantial control” over the company. The reporting requirement applies to corporations, limited liability companies (LLCs), business trusts, and limited partnerships. However, certain entities, like specific types of trusts, are exempt from reporting obligations.
The implementation of FinCEN’s BOI reporting requirement is set for January 1, 2024. Its primary goal is to combat criminal activities such as money laundering, terrorism financing, drug trafficking, and human trafficking. Additionally, the federal government seeks to prevent Russian entities from evading U.S. sanctions through the establishment of fictitious financial accounts.
Reporting Responsibilities for Financial Institutions
While companies are responsible for submitting BOI reports to FinCEN, financial institutions, including banks and credit unions, must collect BOI data from the businesses they engage with. As someone involved in risk management at your institution, you play a vital role in gathering and maintaining this information. Ensuring your entity is protected from risks like fraudulent or incomplete reporting by customer companies is crucial.
What Should Reporting Companies Include in their Reports?
FinCEN requires reporting companies to include the name, birthdate, and address of each beneficial owner in their BOI reports. Moreover, for each beneficial owner, a unique identifying number from an acceptable identification document must be provided, along with an image of the document.
Beneficial owners can supply this information directly to FinCEN and obtain a “FinCEN identifier.” This identifier must be included in the reporting company’s BOI filing. Companies created or registered before January 1, 2024, have until January 1, 2025, to file their initial BOI reports. Entities created or registered after this date must file their reports within 30 days. Additionally, both existing and new reporting companies must provide updates on any changes in ownership information within 30 days of the change.
Financial Institutions’ Responsibilities
FinCEN is in the process of developing compliance and guidance documents to assist companies in meeting the new reporting requirements. A “Small Entity Compliance Guide” will also be published to provide information to smaller companies and other reporting entities. The agency plans to collaborate with industry associations, secretaries of state, and similar offices to offer implementation guidance to companies within their jurisdiction.
However, some crucial details regarding financial institutions’ responsibilities and potential liabilities remain unclear. For example, FinCEN is developing a Beneficial Ownership Secure System (BOSS) to store and secure the received BOI data. According to proposed regulations, financial institutions must obtain permission from customers to cross-check their supplied BOI with the database. Questions arise if customers deny permission or if the provided information does not match the BOSS data. Moreover, banks and credit unions need to determine how frequently they review their customers’ BOI for ownership changes. Failure to safeguard BOI information from the database can incur civil or criminal penalties for financial institutions, which will have limited access to BOSS data.
The Importance of Accurate BOI Data
Gathering all your customers’ BOI data may seem daunting, especially with many uncertainties surrounding its management. Nevertheless, it’s evident that digital tools will be indispensable for financial institutions navigating these reporting requirements. These tools can assist with verifying BOI data effectively.
To aid you in ensuring that individuals are who they claim to be, consider leveraging Thomson Reuters Risk & Fraud Solutions. These solutions offer global ID verification, fraud prevention, and other capabilities that prepare you and your company to meet FinCEN’s BOI requirements and deadlines. Learn more about Risk & Fraud Solutions and their capabilities here.
Thomson Reuters is not a consumer reporting agency, and none of its services or the data contained therein qualify as a ‘consumer report’ under the Federal Fair Credit Reporting Act (FCRA), 15 U.S.C. sec. 1681 et seq. The data provided by Thomson Reuters may not be used as a factor in consumer debt collection decisions, determining consumer eligibility for credit, insurance, employment, government benefits, housing, or any other purpose authorized under the FCRA. By utilizing one of our services, you agree not to use the service or the data for any purpose authorized under the FCRA or in relation to taking adverse action concerning a consumer application.