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Key challenges for complying with FinCEN’s new beneficial owner reporting rules

ARTICLE | May 02, 2023

Authored by RSM US LLP

Starting Jan. 1, 2024, new rules under the U.S. Corporate Transparency Act (CTA) will require certain companies formed or authorized to do business in the U.S. to report information on their beneficial owners and the creators of these entities to the U.S. Department of Treasury’s Financial Crimes and Enforcement Network (FinCEN).

Is your organization prepared to comply with these rules or has a plan to manage risk associated with the large volumes of data involved?

FinCEN has announced that it intends to share data from Beneficial Owner Information (BOI) reports with other agencies to protect the U.S. financial system from abuse by money launderers and other criminals and to unmask shell companies and other financial crimes. With less than a year before reporting begins, compliance officers, legal counsel, and tax leaders should be evaluating the impact and relevance of these rules on their respective organizations as well as their readiness to comply.

Below are the top 10 actions that your organization can take now to address risks and challenges for BOI reporting:

Top 10 action steps for CTA compliance

Step 1: Evaluate your structure and document exemptions

Identify entities in your structure that are subject to BOI Reporting, flag entities that qualify for 1 of 23 exemptions, and register reporting entities on FinCEN’s BOI portal.

Step 2: Review, enhance, and leverage existing documentation

Capture and review information from existing documentation, such as W-8s, self-certification forms, anti-money laundering and know-your-customer data checks, and subscription agreements, that you may already have on file for beneficial owners and automate processes for collecting, validating, and storing BOI-relevant fields. Modify onboarding systems and processes as needed to collect and validate fields for BOI reportable data.

Step 3: Identify and remediate compliance gaps

Perform readiness assessments to identify and remediate any gaps in your existing systems and processes for complying with BOI reporting requirements.

Step 4: Update third party agreements

Review and update agreements with third parties including fund administrators, legal counsel, accountants, and other service providers relied on for CTA related tasks such as assistance with identifying or capturing reportable data, to confirm roles and responsibilities for BOI reporting and to remediate any potential gaps.

Step 5: Identify reportable investors or owners

Perform due diligence on individual and entity investors and customers as required under rules implementing BOI reporting and identify any reportable investors or account holders.

Step 6: Revise policies and procedures

Update policies, procedures, subscription agreements, ISDAs, etc. as needed for compliance with CTA.

Step 7: Track notification and reporting deadlines

Update tax and regulatory filing calendars to include BOI reports and develop a process for tracking due dates and submitting any required BOI reports.

Step 8: Develop a governance structure and training program

Designate individuals or departments as process owners to oversee and monitor global compliance with CTS and develop a comprehensive training program for affected business units and resources.

Step 9: Inform investors and account holders

Develop a communications plan to raise awareness both internally and externally of CTA’s BOI reporting requirements and its impact on your organization, investors, and account holders.

Step 10: Monitor changes in local laws

Develop a process for ongoing monitoring of the rules and any changes in reporting deadlines and for timely dissemination of information.

Need more insight?

On March 23, 2023, FinCEN published the first set of guidance on these rules including frequently asked questions, key filing dates, and an?informational video. This information is helpful, but key operational challenges for onboarding and reporting functions were not addressed. Leading questions or challenges for your organization to consider are:

  • Is reportable data stored in multiple decentralized systems yielding inconsistent results?
  • Are there gaps in your existing systems and processes for capturing reportable data?/li>
  • How will you leverage and validate source data from that you already have on file, such as IRS Forms W-8 and W-9, self-certification forms, and subscription agreements
  • Who should have ownership and oversight of BOI-related processes?
  • How will you identify and document entities that are exempt from the reporting requirements?
  • What modifications are required to be added to the existing internal controls framework to effectively manage risk?

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This article was written by Aureon Herron-Hinds and originally appeared on 2023-05-02.
2022 RSM US LLP. All rights reserved.

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