The Frustrated CFO

"I Built This Prison" Memoir: Teaser #4: Maslow Hierarchy of Needs for White-Collar Employees

BOI Reporting: Wellcome, Big Brother?

If you are a business owner and/or executive and you've used an online processor, like LegalZoom, to set up your corporate affairs; or outsource some of your in-house functions to a large service provider, like Paychex, for instance; or employ a fairly sizable CPA company to audit your books - it is most likely that these business partners of yours have notified you at some point last year that you are a subject to the new type of government reporting - the Beneficial Ownership Information (BOI), due for submission to Financial Crime Enforcement (FinCEN) bureau of the US Department of Treasury. 

The rest of the business owners - those without an exposure to large business and/or professional networks - especially the ones running those small, private, neighborhood companies we supposed to cherish as a backbone of the American economy...  Well, I don't really know how they are meant to find out about this new reporting obligation. FinCEN promised to roll-out a whole awareness campaign with YouTube videos and stuff - but I personally haven't seen anything like that being pushed at me. Maybe if you search for it, you'll find something... But how would you know to look in the first place?

I personally discovered it via LegalZoom's notification sent to an entrepreneur whose books I help to keep. She casually mentioned it to me - I somehow sensed it seriousness and looked into it. Mainly for the sake of the small business owners around me, but also out of the feeling of foreboding this bit of information gave me.

It turned out that FinCEN was formed in 1990 (Wow! The things that fly over our heads! Even if we are somewhat politically alert.) under the parentage of the Office of Terrorism and Financial Intelligence with an official purpose

"to combat domestic and international money laundering, terrorism financing, and other financial crimes".

Naturally, it is a perfect agency to oversee the specific measures that have been formulated under the Corporate Transparency Act (CTA) signed into power by Congress in 2021 - the federal law pushed through under the banner of

"the government's efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures."

                                                         fincen.gov, January 29th, 2024

(Again! What ordinary citizen paid attention to that piece of shocking legal maneuvering?!)

One such measure, formulated in March of 2023, is the BOI reporting. I don't want bore my readers with every single rule and detail pertaining to this new corporate reporting duty. Just bear with me for a few important highlights I'm providing for those who didn't dive into this issue yet. 

A Beneficial Owner is a person who directly or indirectly exercises substantial control over the reporting company or owns at least 25% of its interests. Now, all senior officers - specifically: President, CFO, General Counsel, CEO, and COO; anyone with an ability to appoint or remove officers or a majority of directors; anyone who is an "important decision-maker"; and anyone (listen to this catchall) who has "any other form of substantial control" are qualified as Beneficial Owners and must be reported as such to FinCEN.

There is an interesting caveat: if a person is not a senior officer, but, nevertheless, exercises significant control over the reporting company through her employment there, that person doesn't need to be reported. I'm thinking: high-power controllers who value their privacy higher than the status, or simply don't want to expose their personal info for open access, should stop vying for CFO positions (assuming, of course, the pay is satisfactory). 

Any and all corporations, LLCs, and other entities created through the filing of a document with a secretary of State or any other similar office in the US is obligated to report. I carefully studied the 23 exceptions and can vouch that I personally never dealt with an entity that would qualify for an exemption. Nevertheless, everyone who deals with corporate matters of their businesses/employers is encouraged to study the relevant material at BOI FAQ.

Anyone whom the reporting company authorizes  to act on its behalf may file the BOI report. And this authorized filer, whatever their relationship with the company may be, MUST submit her full name, email address, and phone number. 

The information the reporting company must submit about itself is: full legal name, any trade names (DBAs, etc.), current street address of the principal place of business (to be updated when changes), its jurisdiction of formation or registration, and TIN. The whole kit and caboodle.

For the beneficial owners the reportable data is as follows: name, DOB, residential address, and ID# - either US passport or state driver's license - and the name of the latter's jurisdiction. And guess what? The reported ID must be uploaded into the database! Some people may feel relieved that at least they are not demanding the SSN's. But if you ask me: disclosing your picture ID and the place where you live! Seriously?

But get a load of this! In addition to the information on the entities, their beneficial owners, and those assigned to deal with this by their bosses, the financial crime fighters want to further collect the same info on the individuals they call "applicants" (starting with incorporating dates of January 1, 2024 and on), i.e. the individuals who directly file the documents that create or register the company and those who direct and control the filing. And that's pretty much any intermediary agent whose services you may engage in the process: accountants, lawyers, formation services, even the messengers delivering the application packages into the hands of the clerks.     

FinCEN openly discloses that any Federal, State, local, and Tribe as well as "certain" foreign officials will be allowed the access to thus compiled database for activities broadly described as "related to national security, intelligence, and law enforcement." No consents or even notices of the inquiries' subjects are required. On the other hand, financial institutions need to obtain a reporting company's agreement before being allowed to take a peek. But who in their right mind says "no" to a bank considering granting you a credit line, for example? Especially if it's a small entrepreneurial business. Most eager CFO's and CEO's wouldn't even bother asking who exactly will be looking.

The penalties for refusing or foregoing the BOI reporting include both civil and criminal repercussions: up to $500 per day of the violation, $10,000 fine, and up to 2 years of imprisonment.  

So, to summarize: millions and millions of Americans are now forced to make their personal information openly available for access by all and any domestic and international government entities as well as financial institutions, or risk criminal and civil prosecution. I absorbed all that, and I was like: Whoa! What?! George Orwell miscalculated his arrival by 40 years, for sure, but the Big Brother is definitely hear now - not in North Korea, Iran, Russia, China; but here in the United States of A as well as 30-something other "civilized" countries with similar regulations. Of course, I have to be objective about my reactions to such things: I was born and raised under the communist dictatorship of the Soviet Union. Therefore, I have a tendency of seeing things related to governmental interferences in darker lights than most American citizens. I mean, Terry Gilliam's Brazil (1985) is the avant-garde realism to me, not a dystopian sci-fi as it's conventionally classified.

 

Moreover, I'm a libertarian in my political convictions. Thus, personal and socio-economic freedoms are paramount to me. Even more painful for a small-business crusader like myself: Do we really need another negative consideration thrown at potential entrepreneurs considering going into business? It's fucking depressing - at least to me...

But guess what? It turned out that I was not alone in my fears of the government's infringing on our democracy. On March 1, 2024, the United States District Court for the Northern District of Alabama held the entire CTA, and BOI requirements in particular, unconstitutional. To the fundamental question of whether the Constitution gives Congress the power to regulate millions of entities and their stakeholders the moment they obtain their formal corporate status from the state, the Court has answered that not only there are no constitutional provisions supporting such excessive claims of power, but there are also no citable precedents or sufficient legal nexus.

For the time being, the Alabama Court's decision protects from CTA's enforcement only the specific plaintiffs who filed the claim. We can hope, however, that it will encourage other companies, individuals, civil rights lawyers, etc. in other states, to join the effort of protecting our corporate and individual privacy. Meanwhile, every entity incorporated before January 1, 2024 have to file before the deadline of January 1, 2025 and those incorporated during 2024 - within 90 days after the date of official creation by the state. Starting 2025, the reporting timeframe will be shortened to just 30 days.

Here comes the funny part, though: If you decide to bother yourself with episode 17 of the final (10th) season of The Blacklist, you will be able to see how utterly futile these government efforts are. The vast network the FBI special task force is trying to dismantle during that episode is engaged not only in establishing the fictitious corporate fronts to cover the diverse criminal enterprising, but also in creating flawless, unimpeachable false identities for the individuals - real or virtual - who qualify to be their "Beneficial Owners" under the CTA's definitions.

I mean, it's pretty clear to all of us, isn't it? Those who want to stay hidden - will. Meanwhile, the rest of us will expose our identities to hell knows what kind of breaches and misuses. And if you think that that particular bit of The Blacklist fancy is as phantasmagorical as the rest of the show, we can agree to disagree: I thought it was the most realistic piece of plotting of the entire series. And I watched every single of the 218 episodes and liked quite a few of them too.