Small businesses could face $10,000 or more penalties if they don’t comply with a new US Treasury Department reporting requirement by year’s end. Evidence suggests that a great many such businesses still need to be in compliance.
A Matter of Transparency
The US Treasury Department has launched a campaign to stop malicious actors from hiding behind opaque business structures, which Treasury Secretary Janet Yellen calls “corporate anonymity.” Yellen has explained that such anonymity “enables money laundering, drug trafficking, terrorism, and corruption.”
The Corporate Treasury Act of 2021 was drafted to directly target these hidden financial networks. It is meant to force businesses to disclose who owns and controls them, which the government hopes will make it much more difficult for criminals to exploit corporate structures for illicit gains.
However, the Act has found a secondary target in US small businesses, where its fallout could be significant.
Many Small Businesses Don’t See This Coming
Starting January 1, 2025, approximately 32.6 million businesses will be required to file a Beneficial Ownership Information (BOI) Report with the Financial Crimes Enforcement Network (FinCEN). These requirements are comprehensive and very specific. They demand that businesses provide intricate details about their ownership structure. Companies must report information for anyone owning 25% or more of the company, including details like the person’s address and ID numbers.
Reporting requirements include exemptions that seem at odds with the Act’s intent. Companies with substantial operations–over $5 million in gross sales and over 20 full-time employees–are typically exempt from these reporting requirements. Large corporations, banks, public utilities, and tax-exempt organizations will also fall outside reporting requirements. Small businesses seem to be in the center of the Act’s target area.
Complications Surrounding Enforcement and Compliance
The penalties for failing to comply with new requirements are severe. Businesses could face civil penalties of up to $591 per day for ongoing violations, on top of criminal fines of up to $10 thousand and even up to two years of jail time. “To a small business, suddenly you’re staring at a fine that could sink your business,” warns Charlie Fitzgerald III, a certified financial planner in Orlando.
A recent federal court injunction in Texas has further complicated matters by temporarily halting enforcement of the reporting requirements. However, experts say businesses cannot ignore the upcoming deadline. “Businesses should still be filing their information,” says Erica Hanichak from the Financial Accountability and Corporate Transparency Coalition. The deadline itself hasn’t changed.”
However, as of December 1, only about 9.5 million filings had been submitted, comprising roughly 30% of the estimated total. FinCEN had reported receiving approximately one million new reports per week in December.
It Isn’t Too Late to Be in Compliance
The new requirement calls for careful preparation for small business owners. The first step would be to gather the required personal information from all beneficial owners and verify reporting requirements before submitting information before January 1.
Hanichak has explained that the department isn’t interested in what she calls “Gotcha,” enforcement. In a new requirements FAQ, FinCEN said, “If you correct a mistake or omission within 90 days of the deadline for the original report, you may avoid being penalized. However, you could face civil and criminal penalties if you disregard your beneficial ownership information reporting obligations.”
The S-Corporation Association of America, a business trade group, has characterized the state of compliance as “bleak.” They explained that most businesses were noncompliant, saying, “Millions of small business owners and their employees will become de facto felons come the start of 2025.”
