Category: Thought Leadership

As the end of 2024 nears, compliance with the Financial Crimes Enforcement Network’s (FinCEN) Beneficial Ownership Information (BOI) reporting requirements is more critical than ever. CPAs and attorneys, often on the front lines of this compliance work, face the daunting task of managing complex data, ensuring timely reporting, and staying up-to-date with regulatory changes. Fortunately, technology has become an indispensable ally in simplifying FinCEN compliance for these professionals.

Understanding the Complexity of FinCEN Compliance

FinCEN’s BOI reporting requirements are designed to enhance corporate transparency and combat financial crimes like money laundering and terrorist financing. Although beneficial in the grand scheme, the process of collecting, managing, and reporting beneficial ownership information can be challenging. 

CPAs and attorneys must navigate a maze of regulations, client data, and deadlines to ensure compliance, all while maintaining the confidentiality and security of sensitive information.

This complexity is further compounded by the fact that many businesses, especially smaller entities, may not fully understand their reporting obligations. As a result, CPAs and attorneys often find themselves not only managing compliance but also educating their clients on the nuances of the BOI reporting requirements.

How Technology is Simplifying FinCEN Compliance

Technology has emerged as a powerful tool to streamline the BOI reporting process, reducing the burden on CPAs and attorneys while improving accuracy and efficiency. Here are some key ways in which technology is playing a role:

1. Automated Data Collection and Management
   
   One of the most time-consuming aspects of BOI reporting is collecting and managing the necessary data. Technology platforms designed for compliance can automate much of this process. These tools make it easier to collect information from clients and ensure that all required information is gathered securely. 
2. Updates and Alerts
   
   Regulatory requirements are constantly evolving, and keeping up with these changes is essential for compliance. Technology solutions can provide updates on any changes to FinCEN’s BOI reporting rules through articles and newsletters. They can also provide alerts for any issues that FinCEN is having with the filing process – large volumes of submission cause inevitable breakdowns of the government technology. These ensure that CPAs and attorneys are always informed and can act proactively rather than reactively.
3. Secure Client Communication and Collaboration
   
   Confidentiality is paramount in the legal and financial professions. As many professionals already use it to provide their services, technology platforms offer secure communication channels for CPAs and attorneys to collaborate with their clients on BOI reporting. These platforms often include features like encrypted messaging, secure document sharing, and audit trails to ensure that all interactions are both secure and compliant. BOI is considered sensitive information and should be exchanged appropriately.
4. Integration with Existing SOPs
   
   Many CPAs and attorneys already use various workflows for accounting, legal practice management, and document storage. Modern compliance technology can integrate seamlessly with these existing systems, allowing professionals to manage BOI reporting within their familiar workflows. Some platforms even offer bulk upload of entity information, making it quicker to integrate into the process.
5. Comprehensive Reporting and Documentation
   
   In the event of an audit or review, having detailed records of compliance activities is critical. Technology platforms keep documentation, providing a clear audit trail of all actions taken. Professionals should maintain entity documentation to support any reporting positions taken.

The Future of Compliance Technology

As the regulatory landscape continues to evolve, the role of technology in compliance will only grow. For CPAs and attorneys, staying ahead of these technological trends is essential. By embracing the right tools and solutions, they can simplify CTA compliance, reduce the risk of errors, and ultimately provide better service to their clients.

After submitting your initial Beneficial Ownership Information (BOI) report, it’s crucial to maintain ongoing compliance with FinCEN regulations. The initial report is just the beginning; post-BOI report policies and procedures, such as filing updates and diligent management of beneficial ownership information are essential, as changes in information must be reported within 30 days.

Here are some key post-BOI report policies and procedures companies may consider implementing to ensure they remain compliant and avoid potential penalties. 

Post-BOI Report Policies & Procedures:

Schedule Regular Reviews

Establish a routine review process to ensure that the information in your initial BOI report remains accurate. Schedule regular internal audits to verify the accuracy of beneficial ownership details. This proactive approach helps identify and rectify discrepancies promptly, as needed, avoiding non-compliance issues. Learn more about BOI reporting requirements. 

Designate a Compliance Officer

Appoint a dedicated compliance officer responsible for overseeing BOI reporting and updates. This individual should stay informed about changes in regulations and ensure that the company’s policies are up to date. The compliance officer will also serve as the point of contact for any queries related to BOI compliance. Read about the importance of updating beneficial ownership information.

Implement Robust Record-Keeping Practices

Maintain comprehensive records of all beneficial owners, as well as any changes in ownership. This includes keeping copies of all submitted reports and any amended or restated entity documentation. Detailed records will provide a clear audit trail, making it easier to demonstrate compliance during inspections or audits. 

Employee Training and Awareness Programs

Educate employees about the importance of BOI reporting and the procedures for maintaining compliance. Individuals that are reported on BOIRs will need to notify the company when their personal information changes so it can be reported. For those who are being hired in positions of substantial control, it may be a good idea to integrate educating them about their BOI requirements in the onboarding process.

Clear Internal Communication Channels

Establish clear communication channels within the organization to ensure that any changes in beneficial ownership are promptly reported to the compliance officer. Encourage open communication to prevent any delays in updating the BOI report.  

Use of Compliance Software

Consider investing in CTA compliance software that can automate and streamline the reporting process. Software solutions can make reporting changes easy, generate draft reports for upper management to review, and keep track of upcoming deadlines.  

Establish a Response Plan for Non-Compliance

Develop a response plan to address any instances of non-compliance. This plan should outline steps for identifying and rectifying issues, as well as communication strategies for notifying relevant authorities. Having a response plan in place will help mitigate the impact of any compliance breaches. If information was erroneously reported to FinCEN, there is a 30-day deadline for filing a corrected report with the right information. 

Conclusion 

Maintaining compliance with FinCEN’s BOI reporting requirements is an ongoing responsibility that extends beyond the initial report, even though it is not an annual requirement.

The Freidel Family: A Legacy of Innovation and Hard Work

The Freidel family has never been short on curiosity and innovative ideas. With ten siblings—seven boys and three girls—there was always an entrepreneurial spirit buzzing among them. From a young age, they found ways to create customers and improve the lives of their neighbors.

“We would put up tables at the end of our driveway and make all kinds of crafts to sell. Anything we could do to get a customer, we would do it,” recalls Paul Freidel, the second oldest of the ten siblings.

This entrepreneurial mindset, combined with the strong work ethic their parents instilled in them, has carried through long after they left their childhood home in the western suburbs of Chicago.

“We certainly learned the value of hard work and education,” Paul continues. He exemplified that lesson by earning his bachelor’s degree and taking the CPA exam, scoring within the top 50 in the nation—all by the age of 17.

Eight years ago, Paul and his wife Rebecca, along with their eight children, relocated to Rapid City after visiting the Black Hills during a family trip to Central Iowa. “We just fell in love with the area. This is a paradise with all the outdoor opportunities and open spaces,” Paul reflects.

The move to Rapid City wasn’t just a lifestyle decision—it also opened up new opportunities for Paul to expand his accounting firm, Freidel & Associates, LLC, and launch a new venture with his younger brother, Tim.

In the spring of 2023, Paul and Tim, an IT expert living in Chicago, co-founded Secure Compliance, a software program designed to help professionals and business owners comply with the Federal Corporate Transparency Act (CTA). The duo’s entrepreneurial foresight positioned Secure Compliance as a frontrunner in an important market niche.

The CTA, enacted in January 2021, requires most businesses operating in the United States to report detailed information about their owners or controlling individuals to the government. Paul explains, “This is the brainchild of my brother and me. We saw this regulation from FinCEN coming down the pike and knew it was going to be a compliance headache.”

The U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), which enforces the CTA, collects and analyzes financial information to combat money laundering and other financial crimes. Until the CTA was enacted, the U.S. was one of the few developed countries without a system for beneficial ownership reporting.

“We’re late to the ballgame,” Paul says. “There was a lot of pressure that we might lose our standing in the international banking system if we didn’t implement beneficial ownership reporting.”

While the law was passed in 2021, this year marks the first time companies are required to file beneficial ownership information reports.

“It was kind of a sleeper,” Paul admits. “The effective date was far enough in the future that people weren’t paying attention. The deadline kept getting closer, and most people didn’t even know about it.”

All companies created or registered before January 1, 2024, have until the end of this year to comply or face steep fines. Companies created or registered this year have 90 calendar days after the company’s creation to register. Secure Compliance’s main focus is providing the technology for professionals like CPAs and attorneys to help their clients comply with the CTA. “We work with them, and they do the BOI filings on behalf of their clients,” Paul says, adding that the legislation affects nearly 33 million entities created before this year.

With Tim’s technical background and Paul’s decades of accounting experience, the duo recognized an opportunity to create something that would simplify the lives of professionals.

“We like to say what we do is built by professionals for professionals, and it really is. We know how the business world works, and we know what people need,” Paul says. “We’re bringing that as our special sauce when creating these products.”

Secure Compliance provides an easy platform for making modifications or updates to ownership information, and the hope is to expand their patent-pending software to address other impending regulations. “We would love to continue to build it out,” Paul says of Secure Compliance.

“We have a lot of ideas. Rapid City has a lot of opportunities for growth, so we’re very excited about that. There are a lot of talented people moving here who bring so much to the business community. The DLAB provides a fabulous space and encouragement for tech startups like ours,” Paul concludes enthusiastically.

As the regulatory landscape continues to evolve, one area that has garnered significant attention is the Beneficial Ownership Information (BOI) reporting requirement under the Corporate Transparency Act (CTA). For CPAs, attorneys, and other professionals working with business clients, it’s essential to ensure that clients understand their BOI reporting obligations.

This not only helps clients stay compliant but also mitigates the risk of penalties and legal issues. Whether or not you plan to assist with BOI reporting, you should take it upon yourself to make sure that clients are aware of BOI reporting obligations. 

Understanding BOI Reporting Obligations

The BOI reporting requirement mandates that certain entities disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). This is intended to enhance corporate transparency and combat illicit financial activities. 

However, the complexity of BOI regulations means that many clients may not fully understand their responsibilities, making it imperative for professionals who are aware of CTA reporting to provide clear guidance or refer clients to resources where they can receive help.

Best Practices for Educating Clients

1. Start with the Basics
   

   Begin by explaining what BOI reporting is and why it matters. Clients need to understand that BOI reporting is not just a bureaucratic requirement but a critical component of national efforts to prevent money laundering and other financial crimes.

2. Clarify Who Needs to Report
   

   Not all entities are required to submit BOI reports. Educate your clients on the specific criteria that determine whether they need to report (you may want to take a look at the 23 types of exempt entities in case you are able to point them in the right direction for an exemption they might meet).

3. Explain the Consequences of Non-Compliance
   

   Emphasize the importance of timely and accurate reporting by outlining the penalties for non-compliance. This includes potential fines, legal action, and reputational damage. Clients are more likely to take their obligations seriously when they understand the risks of non-compliance. Most entities have until January 1, 2025, to file which is coming up quickly.

4. Use Clear, Non-Technical Language
   

   Avoid legal jargon and technical terms that might confuse clients. Instead, use straightforward language and practical examples to explain BOI reporting requirements. This approach makes the information more accessible and easier to understand.

5. Provide Resources and Tools
   

   Offer clients resources such as checklists, templates, and guides to help them navigate the reporting process. Refer clients to FinCEN’s BOI website where they can access compliance guides and read FAQs.

6. Schedule Regular Updates
   

   The regulatory environment is dynamic, and BOI reporting requirements may change over time. Stay informed about any updates and proactively communicate these changes to your clients.

7. Encourage Professional Assistance
   

   Finally, remind clients that they don’t have to navigate BOI reporting alone. Encourage them to seek professional advice when needed, whether from you, their CPA, attorney, or a compliance expert. This ensures that they have the support they need to meet their obligations accurately and on time.

Conclusion

There is expected to be 32.6 million BOI Reports filed by the end of 2024. As of August 2024, only about 2.7 million entities have filed. Educating clients about BOI reporting obligations is critical at a time like this. By following these best practices, CPAs, attorneys, and other professionals can help their clients understand and fulfill their reporting requirements, ultimately contributing to a more transparent and accountable financial system.

The regulatory landscape for business compliance is continually evolving, and the recent move by New York to implement state-level Beneficial Ownership Information (BOI) filing requirements marks a significant shift. This new mandate not only highlights the growing importance of transparency in business operations but also raises a critical question: will others follow New York’s lead?

Understanding the implications of this development and preparing for potential changes is essential for businesses across the United States. 

The Significance of New York’s State BOI Filing Requirement

New York’s decision to require state-level BOI reporting reflects a broader trend towards increased transparency and accountability in business practices. This act is aligned with the goals of the Corporate Transparency Act (CTA) and the Financial Crimes Enforcement Network (FinCEN) at the federal level. Effective January 1, 2026, any LLCs operating in the state must now comply with both federal and state requirements, which adds complexity to their compliance responsibilities.

The New York LLC Transparency Act (NYLTA) requires any LLCs formed or registered to do business in the state to disclose their beneficial owners, aligning state regulations with federal transparency efforts under the CTA. This move is a signal that New York is leading the charge in pushing for accountability in business practices.

Will Other States Follow New York’s Lead?

Given the growing emphasis on financial transparency, other states may consider adopting similar state BOI filing requirements. For example, California passed a bill (although not fully into the law yet) that may require corporate entities formed in California to report their beneficial owners along with their annual filings. Several factors could drive this trend:

1. Pressure for Uniform Standards:
   • As more states adopt their own BOI reporting requirements, there may be a push for uniform standards to ensure consistency and avoid confusion for businesses operating in multiple states.
   • Increased collaboration between federal and state authorities could lead to more streamlined and harmonized compliance frameworks.
2. Public and Regulatory Demand:
   • There is a growing public and international demand for greater transparency in U.S. business operations, particularly in light of high-profile financial scandals and investigations.
   • Depending on the result of the CTA database, state and federal regulatory bodies may realize the importance of comprehensive BOI reporting to combat financial crimes.

New York’s state BOI filing requirement marks a significant development in the landscape of business compliance, not just at the federal level, but at the state level. Businesses and professionals must be prepared to navigate any new requirements that may vary across jurisdictions.

In today’s increasingly complex regulatory environment, lawyers and CPAs must navigate a myriad of compliance requirements. One of the key tools at their disposal under the new reporting requirement for new entities – Corporate Transparency Act (CTA) – is the FinCEN Identifier (FinCEN ID). Should lawyers obtain FinCEN IDs?

The FinCEN ID is a unique identifier issued by the Financial Crimes Enforcement Network (FinCEN) for individuals to report on Beneficial Ownership Information Reports (BOIRs) in place of certain required pieces of information. While lawyers will generally not find themselves being reported as beneficial owners on these reports, they may end up being reported as company applicants. 

While obtaining a FinCEN ID might seem like just another bureaucratic step, it actually offers significant advantages that can enhance a lawyer’s practice, protect their privacy, and ensure compliance with critical regulations. 

Enhanced Privacy: Safeguarding Your Personal Information

Privacy is a major concern for legal professionals who routinely handle sensitive information for their clients. Under the CTA, lawyers involved in company formations must provide their personal information on each BOI report where they are involved in forming the company. Sending their information to each client that they service not only increases their exposure to information leaks but also can be a hassle.

A FinCEN ID changes this dynamic. By substituting the lawyer’s personal information with a unique identifier, the FinCEN ID ensures that sensitive details are being directly submitted to the government, not middle-manned through the new entity BOI reports. 

This means that while the necessary regulatory information is still provided to FinCEN, the lawyer’s privacy is better protected. For attorneys who value discretion and security, this is a significant benefit that can offer peace of mind in an era where data breaches and identity theft are on the rise.

Administrative Efficiency: Streamlining the Reporting Process

Another compelling reason for lawyers to obtain a FinCEN ID is the increase in administrative efficiency it offers. The application process for a FinCEN ID is relatively quick, taking only 5-8 minutes to complete. Once obtained, this ID can be shared instead of repeatedly sending the five pieces of required information every time a BOI report is filed.

This streamlined process saves valuable time that can be redirected toward more critical tasks, such as helping clients with the CTA or other compliance-related matters. For lawyers who are not directly engaging in this reporting requirement but still need to support clients, having a FinCEN ID reduces the amount of time spent on administrative tasks, thereby improving overall productivity.

Should Lawyers Obtain FinCEN IDs? A Valuable Tool for Today’s Legal Professionals

With an estimated 5.6 million new entities to be formed each year that will need to comply with the CTA, means that obtaining a FinCEN ID will be increasingly important for lawyers involved in corporate formation going forward. 

For legal professionals who want to stay ahead of the curve and provide the best possible service to their clients, obtaining a FinCEN ID is not just a recommendation—it’s a strategic necessity.