Treasury Secretary Janet Yellen after a visit to the Financial Crimes Enforcement Network (FinCEN) in Vienna, Virginia, January 8, 2024.
Valérie Plesch/Bloomberg via Getty Images
Small businesses and their owners could face penalties of $10,000 or more if they don’t comply with a new reporting requirement from the U.S. Treasury Department by the end of the year — and evidence suggests that many have not yet complied.
The Corporate Transparency Act, passed in 2021, created this requirement. The law goals combat illicit financing by asking many companies operating in the United States to report beneficial ownership information to the Treasury’s Financial Crimes Enforcement Network, also known as FinCEN.
Many companies have until January 1, 2025 to submit an initial beneficial ownership information report.
This applies to approximately 32.6 million businesses, including some corporations, limited liability companies and othersaccording to the federal government estimates.
The Treasury Department did not respond to CNBC’s request for comment on the number of BOI reports that have been filed to date.
The data helps identify people who directly or indirectly own or control a company, making it “more difficult for bad actors to hide or benefit from their ill-gotten gains through shell companies or other structures.” opaque properties”. according to at FinCEN.
“Corporate anonymity promotes money laundering, drug trafficking, terrorism and corruption,” Treasury Secretary Janet Yellen said in a January statement. announcement of the launch of the BOI portal.
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Here’s the kicker: businesses and owners who don’t report can cope civil penalties of up to $591 per day for each day of violation, according to FinCEN. This amount is adjusted for inflation. Additionally, they face up to $10,000 in criminal fines and up to two years in prison.
“For a small business, you’re suddenly exposing yourself to a fine that could sink your business,” said Charlie Fitzgerald III, a certified financial planner based in Orlando, Fla., and founding member of Moisand Fitzgerald Tamayo.
The federal government had received about 9.5 million filings as of Dec. 1, according to statistics provided by FinCEN to the office of Rep. French Hill, R-Ark., who has called for repeal of the Corporate Transparency Act . Hill’s office provided the data to CNBC.
This figure represents approximately 30% of the estimated total.
FinCEN was receiving a volume of approximately 1 million new reports per week in early December, Hill’s office said.
Many businesses may not know this
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A “beneficial owner” is someone who owns at least 25% of a company’s stock or has “substantial control” over the entity, according to FinCEN.
Companies must report information on their beneficial owners, including name, date of birth, address and information from an identity document such as a driving license or passport, in addition to other data.
Companies that existed before 2024 must file by January 1, 2025. Those created in 2024 have 90 calendar days from their effective date of creation or registration to file; those created in 2025 or later have 30 days.
Corporate anonymity encourages money laundering, drug trafficking, terrorism and corruption.
Janet Yellen
US Treasury Secretary
There are several exceptions to the requirement: For example, those with more than $5 million in gross sales and more than 20 full-time employees may not need to file.
Many exempt businesses—such as large corporations, banks, credit unions, tax-exempt entities, and utilities— already provide similar data.
Brian Nelson, Treasury Department undersecretary for terrorism and financial intelligence, said in an interview with the Hudson Institute in February that the agency was “on a complete press“to make known the BOI Registerwhich opened its doors on January 1st.
But it seems that many business owners are either not complying with this requirement or are not aware of this requirement, despite the fact that awareness efforts.
The scope of national compliance is ‘bleak,’ according to the S-Corporation Association of America, a trade group, said early October.
The “vast majority” of businesses had yet to file a report, “meaning that millions of small business owners and their employees will become de facto criminals by early 2025,” the report said.
Law enforcement is on hold
Bevan Goldswain | E+ | Getty Images
However, the situation is not so bleak, others said.
On the one hand, on December 3, a federal court in Texas temporarily blocked the Treasury Department from enforcing BOI reporting rules, meaning the agency cannot impose sanctions while the court proceeds to a more in-depth examination of the constitutionality of the rule.
“Companies should continue to file their information,” said Erica Hanichak, director of government affairs at the Financial Accountability and Corporate Transparency Coalition. “The deadline itself has not changed. It simply changes the application of the law.”
The government is expected to appeal, and enforcement “could resume” if the injunction is overturned, wrote lawyers from the Fredrikson law firm.
Additionally, Treasury said it would only impose sanctions on a person or company that “intentionally violates“ BOI Reporting Requirements.
The agency is not in the business of “enforcing traps,” Hanichak said.
“FinCEN understands that this is a new requirement,” FinCEN said in an FAQ. “If you correct an error or omission within 90 days of the original reporting deadline, you may avoid being penalized. However, you may face civil and criminal penalties if you fail to comply with your beneficial ownership information reporting obligations.