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Published on: 12/28/2023 • 5 min read

What Are The New FinCEN Requirements?

As a business owner, it’s important to not only understand the new FinCEN requirements but to take proactive steps toward protecting your business from potential risks associated with using shell corporations or unknowingly contributing to money laundering and terrorist financing. To be sure that you avoid these risks, it’s important to have a basic understanding of the new FinCEN reporting requirements as of 2024.

What is the FinCEN rule?

The Financial Crimes Enforcement Network (commonly called FinCEN) has issued a final rule mandating some entities doing business in the United States to submit reports that identify two things: the beneficial owners of the entity and individuals who applied to register the entity for business purposes. 

Essentially, many businesses will have to clarify who ultimately owns or controls them. The new FinCEN reporting requirements are set to go into effect on January 1, 2024.

These regulations are the result of Section 6403 of the Corporate Transparency Act (CTA), enacted into law under the National Defense Authorization Act for Fiscal Year 2021 (NDAA). They outline which entities must file reports, the information that must be furnished, and the deadlines for report submission. 

These measures are designed to enhance the prevention and detection of money laundering, terrorist financing, corruption, tax fraud, and other illicit activities while attempting to keep the compliance burden reasonable for entities conducting business in the United States.

Learn more about wealth planning for business owners.

Why did they enact the new FinCEN reporting requirements?

1. National security

Illicit actors frequently exploit corporate structures, such as shell and front companies, to obscure their identities and launder unlawfully obtained funds through the U.S. financial system. Such actions undermine U.S. national security and jeopardize the nation’s economic well-being. Shell and front companies can hide the identities of beneficial owners, enabling criminals to engage in illegal financial transactions within the U.S. economy while creating an uneven playing field for legitimate small U.S. businesses. 

2. Geopolitical events

Recent geopolitical events have underscored the threat posed by illicit actors and corrupt officials to U.S. national security and the integrity of international financial systems. For instance, Russia’s unlawful invasion of Ukraine in February 2022 highlighted attempts by Russian elites, state-owned enterprises, organized crime, and the Government of the Russian Federation to use U.S. and non-U.S. shell companies to evade sanctions imposed on Russia. Money laundering and sanctions evasion by these sanctioned Russians represent a significant risk to U.S. national security and the security of its partners and allies. 

A notable example involves sanctioned Russian individuals using shell companies to evade U.S. sanctions and other applicable laws. In the spring of 2022, Spanish law enforcement froze the Tango, a 255-foot luxury yacht owned by sanctioned Russian oligarch Viktor Vekselberg, in response to a request from the U.S. Department of Justice (DOJ). The DOJ had issued a seizure warrant, alleging violations of U.S. bank fraud and money laundering statutes and sanctions violations. The U.S. Government claimed that Vekselberg employed shell companies to obscure his interest in the yacht and evade U.S. dollar transaction oversight. 

Who is required to file FinCEN 114?

The new FinCEN rule requires certain legal entities to file a report known as the FinCEN 114. This includes corporations, limited liability companies (LLCs), partnerships, and other similar entities formed under state law by filing documents with a secretary of state, equivalent office of state, or Indian tribe. If you are required to file, you’ll want to make sure these documents are compiled with your financial advisor, or whomever you go to for assistance with wealth management for business owners.

It also extends to foreign entities, such as foreign corporations or LLCs registered to do business in the United States or tribal jurisdiction by filing documents with a secretary of state or a similar office.

Who is exempt from FinCEN reporting requirements?

It’s important to note that the rule does not require corporations, limited liability companies, or other entities that fall under any of 23 specific exemptions to file beneficial ownership information reports. Some of the exempt entities include the following:

  • Securities reporting issuers
  • Governmental authorities
  • Banks
  • Credit unions
  • Money services businesses
  • Brokers or dealers in securities
  • Securities exchange or clearing agencies
  • Investment companies or advisers
  • Insurance companies
  • State-licensed insurance producers
  • Accounting firms
  • Tax-exempt entities
  • Inactive entities

Click this link for more detailed information about exemptions. 

How long does FinCEN registration take?

FinCEN has included a detailed discussion regarding the steps involved in filing an initial beneficial ownership information (BOI) report. The notice of proposed rulemaking (NPRM) proposed a breakdown of activities and average time requirements for initial BOI reports, including 20 minutes to understand the form’s requirements, 30 minutes to collect information about beneficial owners and applicants, 20 minutes to complete and file the report (including attaching identification documents for each beneficial owner and applicant), totaling 70 minutes

It is worth noting that the burden and costs of filing initial BOI reports may vary depending on the complexity of the reporting company’s structure. For instance, an LLC with a single beneficial owner who registers the entity and serves as the company applicant would have a relatively simple reporting process. However, entities with more intricate structures will face a higher burden when applying the rule to their organizational setup and collecting identifying information from multiple individuals. 

Wondering how new FinCEN reporting requirements will impact your financial plan? Let’s talk.

If you are a business owner or plan to become one in the near future, it is crucial to stay updated on the new FinCEN requirements. Some additional considerations may include conducting thorough due diligence on potential business partners, implementing robust compliance procedures, and regularly reviewing and updating corporate structures for maximum transparency and compliance. 

Additionally, working closely with a trusted, local financial advisor can help you stay informed about any changes in regulations and ensure that your business is well-prepared for any potential risks or challenges.

Looking for a wealth manager? Avidian Wealth Solutions can help you navigate these changes effectively and help ensure compliance with the law. We offer high-net-worth strategies that include tax planning strategies and financial planning for high-net-worth individuals, families, and business owners.

Schedule a conversation with one of our financial advisors in Houston, Austin, Sugar Land, or The Woodlands today!

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