Corporate Transparency Act Beneficial Ownership Reporting Requirements to Take Effect
In 2021, the Corporate Transparency Act (“CTA”) was enacted as part of the Anti-Money Laundering Act of 2020, requiring certain business entities (“Reporting Companies”) to report beneficial ownership information (“BOI”) to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”). FinCEN issued the final rule implementing the CTA’s reporting provisions on September 29, 2022. Effective January 1, 2024, these new reporting provisions put the onus of reporting beneficial ownership information on the Reporting Companies themselves.
The CTA’s Basic Requirements
The CTA requires certain domestic and foreign corporations, LLCs, or other entities to:
- Report individuals’ BOI to FinCEN, including:
- Full legal name;
- Date of birth;
- Complete current address;
- Unique identifying number from a U.S. passport, state ID, driver’s license, or non-expired foreign-issued passport; and
- An image of the identification document from which the unique identifier was obtained.
- Disclose information about who created the entity or registered it to do business in the U.S.
- Report any change to previously reported information within the specified time period.
Beneficial Owners are those that own, directly or indirectly, 25% of the Reporting Company, or individuals who exercise substantial control. Substantial control means:
- Serving as a senior officer;
- Having authority to appoint or remove a senior officer or the board majority; or
- Directing, determining or having substantial influence over important decisions.
FinCEN will be proposing rules to reduce duplicative reporting obligations, which exist because certain financial institutions currently must obtain similar BOI information for legal entity customers at account opening.
The CTA excludes nearly two dozen types of entities—most already registered or regulated—from reporting. These include, among others:
- Large operating companies (20+ full time employees and $5 million in gross receipts/sales);
- Public companies;
- Venture capital fund advisors;
- Pooled investment vehicles;
- Subsidiaries of certain exempt entities (must be wholly owned subsidiaries);
- Insurance companies and insurance producers;
- Certain other highly regulated entities, such as:
- Credit unions;
- Bank holding companies;
- Securities brokers or dealers;
- SEC-registered investment companies or investment advisers; and
- Exchange or clearing agencies; and
- Inactive companies.
In the Adopting Release, FinCEN stated that it is “not implementing additional exemptions beyond the twenty-three specific statutory ones at this time, including to cover non-depository institution holding companies” but that it “will continue to consider suggestions for additional exemptions.”
Each person filing a report of a Reporting Company’s BOI or application containing information about an individual applying for a FinCEN identifier under the CTA must certify that the report or application is true, correct, and complete. Entities created or registered before January 1, 2024 do not need to report information with respect to any individual who directly files the document creating the Reporting Company (“Company Applicant”), but they still need to report BOI.
On or after January 1, 2024, individuals who are Beneficial Owners or Company Applicants can, upon request via an electronic web form, receive a unique identifying number from FinCEN (a “FinCEN Identifier”). Reporting companies may report the FinCEN identifier of the individual in place of that individual’s otherwise required personal information on a BOI report (so that personal information need not be turned over to the reporting individual).
When to File
The CTA imposes different filing deadlines depending on whether a Reporting Company is in existence, or, in the case of a foreign company, registered to do business in a state or tribal jurisdiction as of January 1, 2024.
For Reporting Companies created prior to January 1, 2024, the Reporting Company has until January 1, 2025, to file its initial BOI report. For Reporting Companies created on or after January 1, 2024, the Reporting Company must file its initial report within 30 days of the earlier of the date on which it receives actual notice of creation, or a secretary of state first provides public notice of the creation of the entity. FinCEN has proposed a rule to extend the 30-day deadline to 90 days for companies created or registered on or after January 1, 2024.
Updated and Corrected Reports
Reporting Companies have 30 days to update their previously filed BOI reports if any of the required information regarding the Reporting Company or its beneficial owners change.
Access to Reported Information
FinCEN will store the BOI reported under the CTA in a secure, nonpublic database referred to as the Beneficial Ownership Secure System (“BOSS”). FinCEN may disclose the reported BOI only if requested by:
- U.S. federal agencies engaged in national security, intelligence, or law enforcement activities, for use in furtherance of those activities.
- A state, local or tribal law enforcement agency, if a court has authorized the agency to seek the information in connection with a civil or criminal investigation.
- A federal agency on behalf of a non-U.S. law enforcement agency or foreign prosecutor or judge.
- A financial institution subject to customer due diligence requirements, with the consent of the Reporting Company, to facilitate the financial institution’s compliance with customer due diligence requirements under applicable law.
Penalties for Violation and Safe Harbor
The CTA provides for civil and criminal penalties for violations, including a criminal fine of up to $10,000, and imprisonment for up to two years, or both, and/or civil penalties of up to $500 per day, for any person who willfully provides or attempts to provide false or fraudulent BOI or fails to report complete or updated BOI to FinCEN. Penalties may also apply to Reporting Companies and individuals who cause a Reporting Company not to report or are senior officers of a Reporting Company at the time the company failed to accurately report or update BOI.
The CTA provides a safe harbor if the Reporting Company that has reason to believe that a submitted BOI report contains inaccurate information files a corrected report within 30 days after becoming aware or having reason to know of the inaccuracy.
Next Steps for Reporting Companies
Entities with reporting obligations should carefully review these requirements before they go into effect on January 1, 2024. Reporting Companies should consider developing compliance and communication policies and procedures with regard to beneficial ownership reporting, updating, and periodic monitoring.
McGuireWoods has been tracking this rule and its implementation and can assist clients by:
- Advising on whether an entity meets the definition of a Reporting Company.
- Analyzing whether any exemptions apply.
- Analyzing who may meet the definition of beneficial owner and substantial control person.
- Assisting clients in establishing a CTA compliance program to ensure regular review, documentation of decisions, and reporting of material changes in BOI.
For questions about these new rules, the CTA, or customer due diligence and beneficial ownership rules more generally, contact the authors of this article or another member of the McGuireWoods Government Investigations and White Collar team, Financial Services Litigation team, Tax & Employment Benefits team, or the Corporate & Private Equity team.