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How to Overcome Common Challenges in Beneficial Ownership Reporting

Companies must now comply with beneficial ownership reporting requirements, but the process is not always straightforward. Find out how to deal with common challenges.

 

Key takeaways:

  • Identify all beneficial owners and ensure information is accurate, complete, and updated.
  • Many corporations have complex, obscure ownership structures, which need to be broken down to ensure accurate reporting.
  • Integrating technology can help reduce the likelihood of reporting errors.

 

Beneficial ownership reporting is now a reality for many organizations in the U.S. Requirements implemented by the Corporate Transparency Act (CTA) began on January 1, 2024, and existing companies must comply within the year. A few common challenges can get in the way of compliance, like failing to identify all applicable owners, not meeting deadlines, and submitting inaccurate information to the Financial Crimes Enforcement Network (FinCEN).

 

How do you deal with these issues and avoid fines and penalties? This article covers overcoming pitfalls and understanding complex regulations to avoid legal repercussions.

 

How to identify beneficial owners

One of the first challenges businesses face with CTA compliance is identifying their beneficial owners correctly. Failing to report information for all beneficial owners can lead to fines and legal trouble.

 

The CTA defines a beneficial owner as someone who either exercises substantial control over the company as a key decision-maker or owns at least 25% of company interests.

 

To simplify the identification process, follow these steps:

  • Identify which business leaders are involved in controlling the company and decision-making.
  • Determine how many owners the business has.
  • Identify which owners meet the 25% or more requirement regarding owning company interests.
  • List all applicable beneficial owners and gather the information you need to report. This is their:
  • Name
  • Address
  • Date of birth
  • Identification number from an ID
  • A photo of the ID

IDs need to be current, and they can be a U.S.-issued driver’s license, ID, passport, or a foreign passport.

 

Dealing with ownership structure complexity

Companies with complicated ownership structures may find the new laws and reporting requirements particularly challenging. A smaller business with only two owners who make decisions, and ownership interests are split 50/50, would be much easier to report versus a large enterprise with many owners and different structures for decision-makers.

 

It’s important to practice due diligence in maintaining data about shareholders and creating and reviewing detailed structures of the business and its ownership. This level of detail avoids the often-obscure structures of large corporations while allowing leaders to see even the smallest of changes to ownership percentages.

 

Monitoring needs to be consistent and continuous to ensure that all changes are tracked among beneficial owners so that the latest and most accurate information is reported. These steps are critical to ensure compliance with the new CTA regulations. And in fact, the laws were created to break down these obscure structures and improve transparency in the corporate marketplace.

 

Avoiding and managing inaccurate information

One of the biggest challenges companies may face in the coming years is ensuring that beneficial ownership information is complete, accurate, and current. This means:

  • The initial report must contain the most accurate information for each beneficial owner
  • Any changes to information must be submitted to FinCEN within 30 days of the change
  • Common changes to submitted information include:
  • An address change for an owner or for the business
  • A new business name
  • A new beneficial owner
  • A new ID for a beneficial owner

 

Unfortunately, not following these guidelines can lead to significant penalties and fines. Potential civil penalties for willful violations include up to $500 per day the violation continues, and criminal penalties are up to two years in prison or up to $10,000 in fines. Avoid these penalties by ensuring information is up-to-date, complete, and accurate moving forward.

 

Because these reporting requirements are new, FinCEN allows businesses to correct mistakes in their initial beneficial ownership filing if they find something wrong. They have 90 days from the deadline for the original report to submit the corrected report and not be penalized.

 

Integrating technology in reporting

A struggle many businesses face is putting a process in place to track and report this required information to FinCEN. They may see it as an administrative burden.

Reporting companies – those required to report beneficial ownership information under the CTA – would be wise to use the latest tools to assist in the data gathering and reporting processes. Automated tools and platforms can help you ensure information is up to date. For example, you can upload ID information for owners in one place and set up automatic notifications for when the ID expires.

When everything is stored in a secure database, finding and accessing the information you need for reporting is easier. Use a system with simple tools for granting differing access levels to ensure security. These tools help you streamline reporting so it’s less of an operational burden.

 

Prioritizing training and adapting to new regulations

Reporting challenges are harder to overcome without the knowledge and training to comply. Whichever individuals will be responsible for gathering information and reporting need to be well-versed in the new standards, fully understanding what information needs to be provided and what deadlines the business needs to follow.

Additionally, laws and regulations continue to evolve over time. It’s critical for compliance to keep up with changes to the CTA or new requirements that may be introduced in the future. Put a plan in place for regularly reviewing legal requirements. Talking to a FinCEN professional is an effective way to stay in-the-know and compliant.

 

Overcoming challenges in beneficial ownership reporting

Keeping up with the new CTA reporting requirements doesn’t have to be overly cumbersome. By recognizing these common challenges and putting the right company practices in place, you can ensure that you report everything correctly and by the deadline. Being proactive and prioritizing continuous learning are key to success.

When you need assistance with the filing process, don’t hesitate to reach out to the FinCEN Advisors team. We streamline reporting so you have minimal business disruption.

 

This ruling, delivered by the Northern District of Alabama on March 1, 2024,
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