Understanding the Penalties for Non-Compliance with BOI Reporting

Imagine waking up to find that your company has been hit with daily fines totaling thousands of dollars, all because of a missed filing deadline. Or, consider the possibility of facing hefty fines and even prison time due to incorrect or outdated information in a required report. These scenarios are not hypothetical—they are real consequences of failing to comply with Beneficial Ownership Information (BOI) reporting requirements.

In this blog, we will break down the serious penalties associated with BOI non-compliance. We’ll explore common mistakes that can lead to these penalties, provide real-world examples, and offer guidance on how to stay compliant. Keep reading to understand how you can protect your business from these costly and avoidable errors.

What is Beneficial Ownership Information?

Beneficial ownership information refers to identifying details about individuals who directly or indirectly own or control a company. This information helps to clarify who is behind a business, providing transparency about the true owners.

Reporting Beneficial Ownership Information to the U.S. Department of the Treasury

Congress enacted the Corporate Transparency Act in 2021, which imposed a new obligation on businesses to notify the US Department of Treasury about beneficial ownership information. The purpose of this project is to stop financial crimes and improve transparency. Here’s why this reporting is important:

• Increase Transparency: Helps identify the true owners behind companies.
• Combat Financial Crimes: Prevents bad actors from using shell companies to hide illegal activities.
• Promote Accountability: This ensures that individuals cannot anonymously control or benefit from businesses.
• Support Law Enforcement: Provides crucial information to authorities to detect and prevent fraud and money laundering.

By adhering to this requirement, companies contribute to a fairer and more transparent business environment, supporting the U.S. government’s efforts to maintain financial integrity.

Who Can Be Held Liable for BOI Reporting?

Individuals and corporate entities can be held accountable for willfully failing to report complete or updated beneficial ownership information. Liability extends to those who caused the failure or were senior officers at the time of the failure.

Specific Scenarios of Liability

• Individual Filing on behalf of a Reporting Company: An individual who willfully files a false or fraudulent report on behalf of a company can face the same civil and criminal penalties as the company and its senior officers.

• Beneficial Owner or Company Applicant: An enforcement action can be taken against any beneficial owner or company applicant who willfully refuses to provide the necessary information, leading to the company’s failure to submit complete or updated information to FinCEN.

Individuals and entities found in violation may face significant penalties, including both civil and criminal charges.

Key Triggers for Updating Beneficial Ownership Information Reports

Maintaining compliance with Beneficial Ownership Information (BOI) reporting requirements is critical to avoid significant penalties. Here are some likely triggers for needing to update a beneficial ownership information report:

1. Changes in Reporting Company Information: If there are any changes to the information initially reported for the company, such as registering a new business name, an updated report must be submitted to FinCEN.
2. Changes in Beneficial Owners: When there is a change in beneficial owners, such as appointing a new CEO or a sale that changes who meets the ownership interest threshold of 25 percent, an updated report is required. This ensures the ownership structure remains current.
3. Changes to Beneficial Owner’s Personal Information: Any change to a beneficial owner’s name, address, or unique identifying number necessitates an update.

Failure to promptly update these details can lead to severe civil and criminal penalties, highlighting the importance of regular reviews and timely updates to maintain compliance.  Let’s understand these penalties in detail.

Civil Penalties

Civil penalties are monetary fines imposed on businesses that fail to comply with BOI reporting requirements. These fines are designed to encourage compliance and penalize those who neglect their obligations.

Types of Civil Penalties:

• Initial Penalty Assessment: Businesses that do not comply with BOI reporting requirements willfully face fines of up to $500 per day for each day the violation continues. For example, if a business has been non-compliant for 30 days, the initial penalty could amount to $15,000 ($500 x 30 days).
• Ongoing Penalties: If the business continues to be non-compliant, additional fines accrue daily. For instance, if non-compliance persists for another 30 days, an additional $15,000 fine will be imposed, bringing the total to $30,000 for 60 days of non-compliance.

Criminal Penalties

Criminal penalties include more severe consequences, such as hefty fines and imprisonment. These penalties are reserved for willful non-compliance, where businesses intentionally ignore BOI reporting requirements.

Consequences of Willful Criminal Non-Compliance

• Monetary Fines: Willfully failing to comply with BOI reporting can result in fines of up to $10,000.
• Imprisonment: In addition to fines, responsible individuals may face imprisonment for up to two years.
• Combined Penalties: In some cases, businesses may face both fines and imprisonment, reflecting the seriousness of willful non-compliance.

Common Non-Compliance Issues in BOI Reporting

Non-compliance with Beneficial Ownership Information (BOI) reporting can lead to significant penalties. Here are some common scenarios where companies may face these penalties:

• Failure to File: If a company does not submit its BOI report by the required deadline, it is considered non-compliant. This scenario is one of the most straightforward forms of non-compliance.
• Incorrect Information: Providing false, inaccurate, or incomplete information in a BOI report can lead to penalties. The information must be both accurate and fully reflective of the current beneficial ownership.
• Failure to Update: Companies must update their BOI reports within 30 days of any changes in ownership or control. Neglecting this requirement can result in penalties for non-compliance, as outdated information can be misleading.

Proactive Measures to Avoid Penalties

To avoid these severe penalties, businesses should implement proactive measures to ensure compliance with BOI reporting requirements. Here are some practical steps:

• Conduct Regular Audits: Regularly audit your company’s ownership structure to ensure all beneficial owners are accurately identified and reported. This helps in keeping your records up-to-date and compliant with the CTA.
• Maintain Detailed Records: Keep comprehensive records of all changes in ownership and control. Detailed documentation facilitates accurate reporting and timely updates, reducing the risk of non-compliance.
• Use Trusted Platforms: Use reliable platforms like Corporate Transparency Filing to streamline the BOI reporting process. These platforms provide secure and compliant submission options, ensuring that your reports are accurately and timely filed.
• Engage Legal Experts: Consult with legal experts familiar with BOI reporting requirements to ensure your company remains compliant. Legal professionals can provide valuable guidance and help navigate complex reporting regulations.

Protect Your Reputation: The Real Cost of BOI Non-Compliance

Understanding the penalties for non-compliance with BOI reporting goes beyond just avoiding fines and jail time—it’s about safeguarding your company’s reputation. An often overlooked aspect is the reputational damage that can occur from non-compliance.

Companies that fail to meet their reporting requirements risk being seen as irresponsible or untrustworthy, which can lead to lost business opportunities and damaged relationships. By prioritizing compliance, you not only protect your company legally and financially but also enhance its credibility and integrity in the marketplace.

Ensuring accurate and timely BOI reporting demonstrates a commitment to transparency and responsibility, reinforcing your company’s standing as a reliable and ethical business partner.

Don’t let non-compliance tarnish your reputation. Contact an expert for the best possible advice and always use the correct resource, like Corporate Transparency Filing.