New FinCEN Reporting Requirements: Understanding the Upcoming Changes

Financial Crimes Enforcement Network (FinCEN), a U.S. Department of the Treasury bureau, is introducing significant reporting requirements focused on identifying and reporting beneficial owners and individuals involved in the operation, formation, and ownership of a business entity.

Effective January 1, 2024, these regulations will bring about substantial changes, prompting affected organizations to comply with new reporting timelines. To understand how this may affect your business, the team at Cukierski & Associates has delved into the details of these requirements, the affected entities, and their implications.

Understanding the Upcoming FinCEN Reporting Requirements

 

Acknowledging the significance of small businesses in the U.S. economy, the forthcoming FinCEN rule strives to minimize the burden on small reporting companies. At the same time, the rule was designed to counter illicit activities by increasing the scrutiny and accountability of corporate entities.

With millions of businesses being formed annually in the U.S., small businesses play a crucial role in economic activity, innovation, and job creation. The anticipated cost of compliance for reporting companies varies depending on the ownership and management structures.

Key Elements of the Beneficial Ownership Information Reporting Rule

The fundamental components of the beneficial ownership information reporting rule are comprised of:

Reporting Companies

The rule identifies two types of reporting companies: domestic and foreign. Domestic reporting companies include corporations, LLCs, or any entity created through state or tribal filings. Foreign reporting companies encompass entities formed under foreign laws but registered to do business in U.S. jurisdictions.

Beneficial Owners

The rule defines a beneficial owner as an individual with substantial control over a reporting company or ownership or control of at least 25 percent of the ownership interests in a reporting company. Exemptions are provided for certain categories of individuals.

Company Applicants

The rule outlines company applicants as individuals responsible for initiating the entity’s creation or registration.

Beneficial Ownership Information Reports

Reporting companies are mandated to provide specific information about their beneficial owners, including name, birthdate, address, and identification details.

Timing

The rule’s effective date is January 1, 2024. Existing reporting companies have until January 1, 2025, to file their initial reports, while new reporting companies must file within 30 days of their creation or registration. In addition, reporting entities must file a report of change within 30 days of any such change in beneficial ownership or management.

Implications for Homeowner Associations (HOAs)

Homeowner Associations (HOAs) are not exempt from these reporting requirements; in fact, they will be directly impacted. The boards of HOAs will have to ensure compliance with these regulations, and they will need to file reports whenever there is a change in board membership.

This is a significant development for HOAs, requiring them to meticulously track and report changes within their organizational structure. Such changes could encompass the appointment or resignation of board members, which would necessitate prompt reporting to FinCEN. Compliance with these reporting requirements is essential for HOAs to maintain regulatory adherence and contribute to the broader goals of financial transparency and security.

Consequences of Failure to Comply with New Regulations

Failure to file initial reporting and subsequent changes can carry a daily penalty of $500, up to a maximum of $10,000.  This is based on the current regulations and subject to change in future iterations of the regulations.

 

Future Steps and Outreach

FinCEN has outlined future steps, including additional rulemaking, to establish access rules for beneficial ownership information and revise customer due diligence rules. The agency is also developing infrastructure like the Beneficial Ownership Secure System (BOSS) to store this critical information securely. Extensive outreach and guidance materials will be provided to assist reporting companies in complying with these regulations.

 

Need More Guidance? Cukierski & Associates Can Help

As the effective date of these reporting requirements approaches, it is crucial for affected entities to stay informed and engage in ongoing research to understand the intricacies and nuances of the regulations. The landscape of regulatory compliance is dynamic, and nuances in implementation may evolve.

Staying informed through reputable sources, engaging with legal and financial advisors, and actively participating in industry discussions will be vital for navigating these changes effectively. Understanding the reporting process, ensuring timely compliance, and being prepared for any future updates or clarifications will be essential for a smooth transition to the new FinCEN reporting requirements.

At Cukierski & Associates, we have our fingers on the pulse of FinCEN and other rules that directly affect our business clients. If you need help navigating these new requirements, we’re always here to help.