Beneficial Ownership Information reporting (BOI) is about knowing who ultimately owns or controls entities, as the identity of individuals may have an important influence on a company’s behavior. In the case of a range of legal or regulatory obligations, it is important for companies to understand where the decision-making really sits and who stands to benefit – financially, politically, or in terms of social outcomes – from a given economic enterprise.
1. Introduction
Beneficial Ownership Information reporting (BOI) is about knowing who ultimately owns or controls entities, as the identity of individuals may have an important influence on a company’s behavior. In the case of a range of legal or regulatory obligations, it is important for companies to understand where the decision-making really sits and who stands to benefit – financially, politically, or in terms of social outcomes – from a given economic enterprise. The implications of this can range from the blandly domestic (is this a friendly local firm that I want to do business with?) to the muscularly international (is this transaction or set of transactions being done by people with a shared interest in bypassing our rules or who are working together to hide risks or shifts in assets?). Even more dramatically, it can save governments from running seriously afoul of collective international sanctions by avoiding putting state money into the company owned by a hostile aggressor regime pretending to be shell companies elsewhere and getting rid of illicit money at the same time. So, “beneficial ownership” data can be extremely important for national security, and national security needs in this area can actually be used as part of a much broader advocacy drive to reform in this area, and most countries need to effectively regulate to that end.
The objective of this essay is to explore the suggestions or calls to open access to information that could prove useful for national security authorities in the context of BOI policy-making. This includes issues related to government agency roles and responsibilities, in terms of collecting basic BOI data and in terms of how or when these agencies might or ought to facilitate access to that same BOI data. It also includes consideration of what the right implications are for national security of denying access to information that BOI-producing agencies are collecting or considering, as well as what would count as legitimate derogations in a BOI data framework. While considering these questions, the apparent difficulty of actually getting access to accurate and up-to-date Beneficial Ownership Information (BOI) is underscored; being able to see the information would not necessarily mean that it was usable in practice. In the total perfectionism of privacy and confidentiality underpinning this system, the tension between privacy and questions of public transparency will also be touched on, with an emphasis as we enter into the detail that effective use of beneficial ownership data hinges both on the conditioning of this private sphere historically and on the equitable balancing of these interests. Furthermore, reporting agencies may also need to justify the period of time elapsing before information is updated, in light of the measures indicating that beneficial ownership is constantly changing and evolving. This essay, after that, includes brief background material.
2. Beneficial Ownership Information Reporting (BOI) and National Security
Beneficial ownership information reporting and national security: There is increasing international concern among governments and international agencies regarding the abuse of hidden ownership facilitating crime and corruption, especially regarding the financing of terrorism and money laundering. It is estimated that around 40% of corruption cases included a complex web of corporate entities and arrangements to hide ownership. International government agencies recommend and require greater transparency in national beneficial ownership registers, including not only individuals with significant interests but also legal entities that might not genuinely be trading at all and are designed only to hide ownership.
Beneficial ownership information (BOI) is critically important to prevent the illicit acquisition and exploitation of legal entities by those seeking to finance terrorism or launder the proceeds of crime. Trust and confidence are recognized internationally as essential to sustain the integrity, safety, and security of the financial system. As a result, measures must be put in place to ensure the robustness and transparency that underpins trust and confidence in the financial system and that, as far as possible, ensures bad actors are unable to obscure their activity in an effort to undermine compliance with regulatory parameters or conduct illicit financial transactions. The absence of measures to ensure transparency is increasingly a focus for authorities not only to close AML/CFT gaps but also in relation to tax evasion, economic crime, and other security threats. A lack of transparency represents a material threat to the integrity of the economy and impacts national security, tax compliance, and the business environment. It artificially distorts the global balance of wealth by facilitating tax evasion, making assets and entities bought with ‘dirty’ money appear legitimate. This has an impact on trust in government and democratic institutions, economic prosperity, fairness, and competition. It processes crime and exports risk.
2.1. Definition of Reporting Companies
The term reporting companies is used to refer to the companies, organizations, firms, and enterprises that have a duty to report their beneficial ownership information to relevant agencies. The characteristic of reporting companies proposed in this document refers to those firms that are involved in economic activities. As a solid criterion to categorize different business entities, commercial activities may also be able to demarcate the universe of reporting companies as those with the duty of submitting reports to relevant authorities. The reporting company approach is promising in addressing a round of practical impediments during the design of the reporting system and subsequent implementation. The promoter, as well as the main political rationale and legal standpoint behind identifying certain entities as reporting, is that a set of persons who hold an ultimate interest in a company may be used to perpetuate crime. In other words, the public/private interest matrix sets the rationale for distinguishing the category of business entities which need to report beneficial ownership information to competent authorities. Several recent legislative and regulatory initiatives have adopted the above approach to specify the relevant definition of reporting companies who are eligible for reporting. For example, it simply states that every reporting company that appears to have a beneficial owner shall identify and obtain the beneficial ownership information of that beneficial owner. There is no direct indication of the criteria of a reporting company in the Act. Similarly, the term reporting company simply indicates a company falling within the scope while the definition is presented by means of a combination of various criteria, such as a nexus to the EU, member states, or an enterprise cross-border dimension more than others.
2.2. Identification of Beneficial Owner
2.2. Identification of the Beneficial Owner
The first and one of the most important steps in BOI information reporting is the identification of the beneficial owner of the company or an entity. Determining the criteria for what an applicable legal criterion for the definition of the beneficial owner is and who the beneficial owner is has become one of the biggest controversies of the BOI. The explanation for why it is important to know the beneficial owner, a natural person who ultimately owns or controls the company and/or the person on whose behalf a transaction is being conducted, is about fighting money laundering and the financing of national security threats such as terrorism. The purpose of money laundering is to distance the proceeds from their illegal sources. In many cases, companies are used to hide the proceeds and the beneficial owner of the proceeds from illegal activity. The standard for BOI is very similar to the definition.
The criteria for identifying the beneficial owner must be relevant and provided with adequate mechanisms of interaction between law enforcement and companies in the private sector. These mechanisms should guarantee transparency and the expression of corporate will in connecting the process of identifying the beneficial owner through the companies and private individuals affected. In practice, the determination of the beneficial owner by the controlling mechanism has a leading role in the control exercised through chains of companies, even though it generates numerous problems, until the legislative framework of identification reaches a fully mapped mechanism. The national authorities and registries are confronted with several problems and obstacles in communication with companies from the private sector. These problems vary according to the political, social, economic, and legal constitutions of the states. The owners from the private sector may not want to present their identification details, may not want to or cannot communicate and exchange these details with the companies from the beneficial owner chains, and may not want to exchange information with the authorities and registries or with other entities of public interest. These owners might even present false details in the file of records designed for national issues or they might not mention that they are owners in several other companies. If the companies refuse to list at least one beneficial owner, they are liable according to law to a fine imposed by the regulating body, depending on each specific case of a non-disclosed beneficial owner.
3. Government Agencies and Access to BOI
There are often multiple government agencies to which the information is relevant. Although each will want their own questions answered, whether for threat assessment, verifying protocol, investigations, or surveillance, it is in the national interest for all concerned to have an accurate and meaningful picture of the ownership and control of any given business entity. The challenges for the agencies are firstly getting the information in time. Apart from protocols that may delay the release of data that can be used to ascertain immediate follow-on information, such as which banks, auditors, legal representation, invoices, etc., the agencies will need to access directly or via data-sharing agreements. Secondly, there has to be a political will to allow agencies not directly connected with revenue raising or law enforcement to have the data or access to the data to form the profile or trigger intelligence-gathering activities. Thirdly, with the attitude and practice of some signatory nations of non-enforcement, or a one-off ‘fix’ to satisfy certain requirements, some looking at this regime will argue that it will be just ‘red tape’ for the compliant nation-states. Even with access to data, there is now legislation in many jurisdictions that will need to be navigated before actionable intelligence can be obtained. Furthermore, agencies need to be transparent about the purposes for which the data is to be used, and any information gathered accordingly must not be used for an improper purpose, given the potential of the data to be seriously misleading to the uninitiated. There are multiple reasons that agencies would want to access beneficial ownership information: it could be regulatory, counter-terrorist financing, national security, sanctions, proliferation financing, or money laundering and tax evasion. Someone behind a legal structure might not be bothered with terrorism but might have other regulatory or taxation worries. The failure to get access to beneficial ownership information for national security purposes risks ending up with a patchy grab-bag scenario, with those who are already part of certain groups to tackle cross-border data requests from investigators by letting them ‘go straight to the source.’ It would be difficult to avoid that the comparatively richer and probably likelier countries to switch on and use systems for a beneficial ownership-related request will informally have further advantage over those who have to wait for the longer and harder-won flow of information through diplomatic channels. This, in turn, means that this could also, through these accepted patterns, hurt our smaller and further afield partners and allies in what could be – once aggregation of the data occurred – a global issue. Overall, the approach to facilitating seamless and rapid information exchange on beneficial ownership must be handled correctly in a burgeoning, but also occasionally fragile, climate.
3.1. Role of Government Agencies
Several government agencies may have an interest in Beneficial Ownership Information (BOI). At a minimum, these include financial intelligence units (FIUs), tax agencies, and law enforcement and security services. A comprehensive approach, integrating the information from multiple agencies, is the best way to prevent, detect, investigate, and prosecute a variety of illicit activities, from white-collar crime to terrorism. By sharing information, the identification and apprehension of many categories of criminals can be made more likely. The methodology to assess compliance with the recommendation that calls for government access to BOI has tracking taxonomy along similar lines: all types of illegal money are part of an interconnected network for money laundering and the financing of terrorist activities.
Various government agencies have become experts in setting up the complex regimes that are supposed to deliver the collection, analysis, and aggregation of the beneficial ownership information. However, as several studies and reports make clear, there is still much to do. Typically, despite these agencies being in place, there is not much evidence relating directly to the implementation of the proposed data requirements or to the actual capture and utilization of the beneficial ownership data. There is some questioning of the ability of tax agencies to go beyond “process” outcomes to properly assess the effective tax outcomes of their actions. This elevates trust in the data overall but does not answer questions about how tax or other agencies check if their processes are really effective.
Several excellent reports have, however, tracked the impact of some data requirements. These focus mainly on establishing compliance with the requirements rather than impacts on security. In addition, the AML component is very largely practice-based; if the agencies just learned more effectively from their data, they could increase security rather than engage in an evidence-based activity. However, there is emerging evidence on how security threats are perceived. We don’t see any reason to believe that government security is now made more effective through BOI or anything else by guarding at the borderline. On the contrary, the ‘evolving threat’ has for years been listed by reputable agencies as needing a proactive response, involving interagency communication and data.
3.2. Legal Framework for Accessing BOI Information
Before beneficial ownership information (BOI) can be used for national security, a valid legal framework is needed to facilitate access to and retrieval of BOI by enforcement agencies. Within the European Union, this access to BOI is laid down in the Anti-Money Laundering Directive. In the legal sub-section, it was shown how current national and international legal systems aim to make company ownership more transparent. In this section, we will evaluate the effectiveness, efficiency, and limitations of those legal provisions and the various reasons justifying and limiting access to ownership. It also explores the leeways and available strategies for companies, partnerships, and trusts and their advisors to legally report ‘opaque’ information. The section focuses on ensuring the balance of interests of data subjects, such as privacy rights and rights to effective legal remedy, with the legitimate interest of the government.
The main question here is: under which legal conditions are ‘enforcement agencies’ legally allowed—and obliged by law themselves—to have ‘real-time’ access to effective and recent company ownership, which includes beneficial ownership information? Access should be interpreted as effective legal powers on the one hand and the financial and practical sweep of powers, on the other, that can be brought to bear upon the legal and compliance obligations that corporations face. International standards require the mandate for entities to disclose this information to the central authority to be government-regulated by law or regulation. At the national level, the rules on the setting up of corporate vehicles and the consequences of not owning them could be approached in various ways within the possibilities provided by the international standards that have been agreed upon. It would seem a competitive and possibly deterrent of offending (as well as an incentive to report truthfully) to impose heavy sanctions on those who deliberately provide an incomplete, misleading, or false statement, whether this was done for a business purpose or with a view to illegal activities.
4. Filing Requirements for Beneficial Ownership Information (BOI)
Filing requirements for beneficial ownership information (BOI) – A description of the requirements for reporting beneficial ownership information (BOI) and what these requirements entail. Topics covered include reporting filing requirements and the rationale behind them, regulations detailing these requirements, the obligations of a variety of organizations including funds, and consequences for non-compliance for both companies and their employees. This chapter provides an overview of beneficial ownership information (BOI) filing requirements. The Irish Registrar of Beneficial Ownership Information (RBO) should have access to up-to-date information about persons or entities with significant control and/or economic interests in Irish incorporated corporate bodies and industrial and provident societies.
Subject to legislation enacted by the Irish government, legal entities shall maintain up-to-date BOI and file this information with the state agency in Ireland responsible for establishing and maintaining a central register of such information. Non-compliance with BOI reporting requirements will have consequences for both the company and its officers. While the content of this chapter is primarily based on the regulations and interpretative guidance issued by the Irish Department of Business, Enterprise and Innovation, this chapter also draws from extra guidance and communications issued by other branches of the Irish government. It is important to note that BOI requirements are dynamic and are subject to ongoing change. It is up to each company to do the necessary work to ensure that compliance with filing requirements is achieved on a timely basis.
The guides and templates provided by the RBO are based on our current interpretation of the relevant legislation. They are not an exhaustive prescriptive interpretation of the law. Their content may not take account of all considerations and individual circumstances that may arise in relation to your own compliance situation. Each BOI officer, or any other company role holder with a filing requirement or obligation, should be in a position to competently verify all BOI in their possession insofar as is possible.
4.1. When to File BOI Information
Following the guidance provided in regulation, there are two key triggers for disclosing information related to a beneficial owner. First, as part of a filing completed for a new entity formation, an entity must complete the beneficial ownership certification in addition to related filing documents. Second, when there is a change in beneficial ownership of a domestic entity, the existing company must file the change to beneficial ownership within 30 calendar days of the change. In general, failure to file timely beneficial ownership information makes the entity and its owners subject to additional enforcement efforts and potential penalties. Because timely filings with the secretary of state are essential, companies can take a proactive approach by regularly reviewing their business and ownership structures and seeking to understand who the beneficial owners of their operations are. If the conditions for filing with the appropriate government agency exist, companies should take steps to develop a standardized process for reviewing investments and file the required reports. Evaluating the possibility of changing business entities or making changes to beneficial ownership during the planning process should also be part of the process. Consideration should be given to the potential requirement to periodically file ownership certificates as additional agencies and regulations are considered and added. Finally, it is very important to detail your plans and maintain ownership records that are precise, accurate, and current to make the certification process as efficient as possible. Companies must continue to maintain responsibility for the accuracy of official state documents and certifications, and this may include updates to ownership information in presentations to the Filing Office outside of the filing deadline. The availability of beneficial ownership filings across the country would not only facilitate domestic transparency but also be in the interest of national security.
4.2. Companies/Entities Created or Formed Before January 1, 2024
Companies and other entities incorporated or registered to do business before January 1, 2024, with a filing with their registering office at that time are required to file initial beneficial ownership information by January 1, 2025, and the most recent beneficial ownership update must be completed within two years following the first update. This subsection provides more detailed information about the specific filing requirements for these companies. The method and timing of filing beneficial ownership information are different for existing businesses, as is the process for compliance with BOI regulations.
Existing Companies: A key consideration for existing companies and non-corporate entities will be understanding how to obtain and validate the required information. Potential sources of information may include organizational records, tax filings, estate documents, or other sources depending on company procedures and the details of the individuals who have the right to control or prescribe transactions or administration of the business. These obligations on existing businesses are intended to update the information of a part of the entities registered in the U.S. with information that may also be used by the agencies.
If these problems are identified and addressed, existing companies provide a significant portion of the beneficial ownership information that would improve U.S. transparency and contribute to affected agencies’ efforts to combat illicit finance, money laundering, fraud, cybercrime, and, most importantly, protect U.S. national security. Sufficient financial resources have been provided for the establishment of the program and implementation of the beneficial ownership registry requirements, helping states to establish necessary processes and procedures to comply with the new law and regulations as the registry is formed. Potential penalties for non-compliance could also require action to be taken as soon as possible to be in compliance, as well as potentially increasing efforts to verify the company’s compliance and potentially increasing the number of enforcement actions taken not relating to a timely BOI submission. Companies are encouraged to engage with appropriate staff, counsel, or other advisers in order to be prepared to comply with any upcoming beneficial ownership information reporting requirements that would apply, taking into account the data of their registration or formation and filing situations.
Outreach to Existing Companies: Some work may need to be done before regulations governing the overall form and content of beneficial ownership information may be finalized. Not all of the beneficial ownership consumer education materials that are necessary for registry staff may be ready for use by companies that are formed or register at the state or local levels to do business in the U.S. at this time. In particular, non-consumers of the beneficial ownership information materials for companies display an algorithm that explains the different forms required—in general, the LLC, what and when, and how companies may determine which form applies through a set of conditions that are met—and addresses a series of “Frequently Asked Questions.” Thus, while it is recommended that existing companies begin gathering the necessary information and data, related consumer education material to facilitate the completion of the beneficial ownership information layer, existing companies will likely need to await further beneficial ownership consumer education and guidance materials before beginning a more formal or structured process to update or ensure the collection of required information.
4.3. Companies/Entities Created or Formed After January 1, 2024
- What you need to know: New companies and entities created or formed in Iowa or doing business in Iowa without a Certificate of Authority under these circumstances have filing obligations with the Iowa Secretary of State related to Beneficial Ownership Information (BOI). Although the language of Iowa Code will be applied to all companies and entities after December 31, 2023, companies and entities created after January 1, 2024, may have more stringent requirements and/or penalties and sanctions related to the catch-up filing outlined in Iowa Code.
- The report will outline: The catch-up filing requirements for the following companies created or formed after January 1, 2024:
- Domestic businesses and domestic business corporations ii. Domestic nonprofit corporations iii. Foreign business and nonprofit corporations iv. Limited liability companies v. Franchise tax non-reporting corporations vi. Limited partnerships vii. Limited liability partnerships viii. Business and nonprofit entity that is an accredited or statutory endowment charity to which Iowa Code applies.
- The BOI oversight team insists that businesses will be encouraged to obtain and file a certification of “no BOI report due” at the same time they apply for a Certificate of Organization or a Certificate of Authority. A newly established company or entity that fails to file all required reports could face both application refusal and negative regulatory action by each respective Iowa filing office. To assist in mitigating bad faith attempts, the Secretary of State’s office is working with the business entity community to educate their organizations as businesses are created or become authorized to do business in Iowa. At this time, the Business Services Division will begin to develop staff training regarding the expanded BOI requirements in order to draft or amend internal policy for handling new paperwork submission. Staff messaging about compliance will carry over from the Internal Stakeholder group to all departments within the Division.
4.4. What we offer
At Ibrahim CPA, we understand the complexities surrounding Beneficial Ownership Information (BOI) reporting and its implications for businesses. Our team offers expert guidance to help you navigate these regulations with ease, ensuring compliance while minimizing risks. Whether you need assistance in understanding reporting requirements, preparing accurate documentation, or implementing effective systems to manage ownership data, we provide tailored solutions to meet your needs. Trust Ibrahim CPA to keep your business compliant and well-prepared for BOI regulations, so you can focus on achieving your financial goals.
