To establish a comprehensive way to police domestic money laundering, the U.S. Congress passed the CTA, which directs FinCEN to establish and maintain a national registry of beneficial owners of certain legal entities formed or registered in the U.S. An estimated 32 million companies, both domestic and foreign, will be impacted by the CTA. If your business was created by the filing of a document with a secretary of state or other similar office, your company may, subject to specific exemptions, be obligated to file beneficial owner and company applicant information with FinCEN. Further, if you own an interest of 25 percent or more, have substantial control over, or are responsible for legal compliance, all as determined in accordance with the CTA regulations, for one or more business entities, your business and you will be impacted by the CTA.
What Companies Need to Know
The CTA was passed on January 1, 2021, as part of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (the NDAA) and will go into effect on January 1, 2024. The CTA:
- Requires certain companies, beneficial owners, and company applicants to file a report and certain other information with the U.S. Department of Treasury.
- Authorizes FinCEN to disclose this information to certain government authorities, both domestic and foreign, and some financial institutions for select purposes.
- Intends to reduce instances of money laundering, tax fraud, drug trafficking, and terrorism financing in the U.S. by creating a national federal database that tracks the beneficial ownership of certain domestic and foreign entities.
- Expects to deter bad actors from engaging in money laundering, tax schemes, and concealing assets, as well as provide greater global transparency into ultimate ownership of U.S. registered entities.
Who Must Report
A "Reporting Company" needs to report on itself, its beneficial owners, and the company applicants. Only companies formed on or after January 1, 2024, must report information on company applicants.
Two Types of Reporting Companies:
- Domestic reporting companies, which include corporations, limited liability companies, limited partnerships, limited liability limited partnerships and "other similar entities" formed by filing a document with the secretary of state or similar office of any State, which is defined to include the U.S. Virgin Islands, Puerto Rico, other U.S. territories and Indian Tribes.
- Foreign reporting companies, which are corporations, limited liability companies and similar entities formed under the law of a foreign country and registered to do business in the U.S. pursuant to a filing with the secretary of state or similar office in any State.
Exemptions
It is critical to review the exemptions as defined in the CTA regulations as each of the exemptions are defined with specific limitations and descriptions.
- Securities reporting issuer;
- Governmental authority;
- Bank;
- Credit union;
- Depository institution holding company;
- Money services business;
- Broker or dealer in securities;
- Securities exchange or clearing agency;
- Other Exchange Act registered entity;
- Investment company or investment advisor;
- Venture capital fund adviser;
- Insurance company;
- State-licensed insurance provider;
- Commodity Exchange Act registered entity;
- Accounting firm;
- Public utility;
- Financial market utility;
- Pooled investment vehicle;
- Tax-exempt entity;
- Entity assisting a tax-exempt entity;
- Large operating company;
- Subsidiary of certain companies; and
- Inactive entity.
Timeline
Each reporting company shall file an initial report as follows:
- For reporting companies formed or registered on or after January 1, 2024, within 90 calendar days (during 2025 only!, then 30 calendar days) of the earlier of the date on which it receives actual notice that its creation has become effective or the date on which a secretary of state or similar office first provides public notice.
- For reporting companies formed or registered before the effective date of the final rule, no later than January 1, 2025.
- Previously exempt entities that lose their exemption or otherwise become a reporting company have 30 calendar days to file an initial report.
- Reporting companies must file an updated report within 30 calendar days after the date of any change in the information previously submitted to FinCEN, including becoming exempt from reporting.
- Reporting companies must file a corrected report within 30 calendar days after the date on which the reporting company becomes aware or has reason to know that any required information contained in any report was inaccurate when filed and remains inaccurate.
Important Dates
- New companies – those formed or, in the case of non-U.S. companies, registered on or after January 1, 2024 must file the initial report within 90 days of creation or registration (during 2025 only!, then 30 calendar days).
- Existing reporting companies – those formed or registered before January 1, 2024 – have until January 1, 2025 to file an initial report.
- Updates and corrections to beneficial ownership information require the filing of a report within 30 days.
Bottom Line
The CTA and the CTA regulations may have a significant impact on your business operations. FinCEN continues to issue guidance to assist companies with interpretation of and compliance with the CTA. Baker Donelson corporate attorneys are available to help clients assess the implications of these new and evolving reporting requirements.