No ‘gotcha’ enforcement of BOI regulations, FinCEN chief vows

The Financial Crimes Enforcement Network (FinCEN) will not use “gotcha enforcement actions” against small businesses when it finds errors in reports of beneficial ownership information (BOI), the network’s director told a congressional committee on Wednesday.

“The statute is very clear that we can only take enforcement action against willful violations,” FinCEN Director Andrea Gacki told the House Committee on Financial Services. “This is not about punishing small businesses but looking for those actors that are willfully evading the requirements.”

As of Jan. 1, most companies created in or registered to do business in the United States must report information about their beneficial owners to FinCEN as part of an anti-money-laundering initiative enacted through the Corporate Transparency Act (CTA), P.L. 116-283, in 2021. The requirement applies to an estimated 32.6 million companies, FinCEN officials have said, with about 5 million initial reports filed annually after that.

The law allows FinCEN to compel information from “those shell companies that are acting as fronts for the movement of illicit money,” Gacki said.

Penalties for willful violations are $591 a day, up to $10,000, and criminal penalties could include up to two years of prison time.

FinCEN plans to focus on education and outreach to make sure the companies understand the requirements, she said. FinCEN has published a Small Entity Compliance Guide in 11 languages and has taken other steps, such as using social media, to reach out to businesses, Gacki said.

“It’s our job to make sure that the broader American public understands this obligation is something we take very seriously, and we don’t anticipate using enforcement as a way to educate them,” Gacki said.

Lawmakers seemed dubious that FinCEN can reach all the companies that must report their BOI and questioned Gacki’s statement that companies with simple structures need “no more than 20 minutes” to complete the form. They also questioned the security of the database that some entities will be able to access.

“We’re going to have people find out this year that they have this massive new requirement to a domestic intelligence gathering organization, and they’ll find out for the first time that FinCEN exists,” committee Chair Patrick McHenry, R-N.C., said. “This is an enormously cumbersome and complicated thing.”

But the committee members also were careful to say that despite their concerns, they support protecting national security, which is the CTA’s intent. “I’m just not sure, frankly, how effective this is going to be for the purpose that you’re seeking,” said Rep. Dan Meuser, R-Pa. “Because it’s a noble one, national security, you’re FinCEN, but to what degree are we actually going to have the outcomes that we’re seeking?”

About 500,000 companies have filed their reports so far, said Brian Nelson, Treasury undersecretary for Terrorism and Financial Intelligence, who appeared with Gacki.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.