Beneficial owners, the entities with a significant share in assets and voting rights, are the driving force behind a business. Onboarding a company without identifying and verifying the ultimate beneficial owner can expose it to risks. The beneficial owner’s involvement in illegal funding or sanctioned identity could lead to legal consequences, including hefty fines or sanctions for partner companies. Therefore, a thorough investigation is necessary. Beneficial Ownership Information reporting is a crucial step to mitigate these financial challenges and ensure transparency in the business world.
Understanding of Beneficial Ownership Information Reporting
The primary identities behind the business are beneficiaries, directors, and shareholders, and verification of all of them is required. There is a difference between the ultimate beneficial owner and the beneficial owner on the basis of the share in assets. The UBO usually contains a 25% share of the company according to jurisdiction, while the beneficial owner has a 10 to 15% share. The verification of beneficial owners is necessary to assess its legitimacy. The financial performance of the is also evaluated to detect financial risks associated with identities. BOI reporting contains complete information on the beneficial owners of the business. Under CTA, it is a legal requirement for companies to file Beneficial Ownership Information reports to FinCEN.
Non-filing BOI Reporting Rule
A company that has not filed beneficial owner reporting is legally liable to be punished by fines and sanctions. The company will be punishable by civil or criminal means if the company’s beneficial owner information is inaccurate or not updated. The civil penalty for a violation is halfway the number of days of violation multiplied by $500; however, the criminal penalty cannot exceed $10,000. The civil/criminal penalties are avoided only if the company files the ‘beneficial owners’ information, and the report must be filed within 90 calendar days.
Benefits of Beneficial Ownership Reporting
There are several benefits of beneficial ownership information, and a few of them are discussed in detail:
- Monitor Compliance Obligations
A beneficial owner can be defined as an individual who has an interest in a company and controls stakes in company assets. As for the aspect of compliance obligation, entities must be compliant with the laws and regulations. The beneficial owner’s information reporting helps the business in establishing whether he follows the AML and CTF standards. Nevertheless, if the beneficial owners of the company fail to meet the required obligations, they are exposed to risk and threats. The potential risks related to beneficial owners are identified through Beneficial Ownership Reporting requirements.
- Risk Management
The identification of the UBO allows reducing the risks related to violations of sanctions. If the business is unknown who is behind or on the receiving end of the business, it might be working with sanctioned parties or entities, which might enable severe legal and financial consequences. These requirements come in many forms, such as sanctions regulations like those in the U.S. The Office of Foreign Asset Control, the European Union, and many others impose requirements on businesses to filter and sanction all persons and companies with certain identities. Verifying the UBO ensures one does not deal with an individual on a sanctions list.
- Transparency in Financial Relations
If the data of the beneficial owner of the firm is missing or the presented information is false. The business partners of that company kept on being at risk of fraud, crimes, or sanctions. By the BOI reporting, the beneficial owners are identified, and therefore, the financial threats are reduced to the minimum. Reporting beneficial ownership information, in the long run, helps build a culture of transparency in financial affairs among businessmen.
- Reputation Building
The majority of fraud cases are observed in the business field, primarily because of the abuse of authority granted by the beneficial owner. While building the bond with third parties, the invalid or inadequate data of beneficial owners increases the fraud risks. An accidental black money case may emerge, and this is a threat to the business both financially and in its image. Thus, companies do not onboard the badly reputed ones because this is a threat to the business.
Final Words
FinCEN needs businesses to authenticate beneficial ownership information, which includes the name and physical address of each beneficial owner, contact number, license copy, and passport ID. Therefore, beneficial ownership reporting is a crucial process that prevents criminal activities in businesses. Hence, Beneficial Ownership Information reporting maintains the legal standing of the company that submits these reports.
