When the CTA became law, it gave the Secretary of Treasury a deadline of one year to implement its contents. The requirements of the CTA will be enforceable when final regulations become effective. On December 7, 2021, FinCEN issued proposed regulations (the “Proposed Regulations”) inviting comments until February 7, 2022.

When the comment period closed, FinCEN had received over 230 comments.

Who has an obligation to report?

Under the Proposed Regulations, all entities formed under the laws of a U.S. state or territory and all foreign entities registered to do business in a U.S. state or territory will have the obligation to report their beneficial ownership information.

The Proposed Regulations carve out several exceptions from the status of “reporting company.” Most significantly, entities with over 20 employees or more than $5,000,000 in gross revenue, as reflected in a federal income tax return, are not reporting companies.

In addition to disclosing beneficial ownership information, reporting companies will also have to disclose information about the “Company Applicant,” defined as the individual who files the document legally forming the entity, including any person who directs such filing. As a result, information on the decision-maker, along with information regarding who materially filed the organizational document (such as an employee of a law firm or corporate formation business), will have to be disclosed to FinCEN.

What is the content of a report?

The CTA requires disclosure of the following information for each beneficial owner of an entity:

(i) full legal name; (ii) date of birth; (iii) current, as of the date on which the report is delivered, residential or business street address

The CTA defines “beneficial owner” as any individual who, directly or indirectly, “(i) exercises substantial control over the entity; or (ii) owns or controls not less than 25 percent of the ownership interests of the entity.” The Proposed Regulations expanded on the notion of “substantial control” by indicating that substantial control can be expressed as “(1) service as a senior officer of a reporting company; (2) authority over the appointment or removal of any senior officer or the dominant majority of the board of directors (or similar body) of a reporting company; or (3) direction, determination, or decision of, or substantial influence over, important matters of a reporting company.”

It is important to note that the information required to be disclosed will not be publicly available. FinCEN will have to maintain this information confidential and limit its use and dissemination for law enforcement purposes.

When is a report due?

For newly formed entities, a beneficial ownership report is due within 14 days after formation. As to existing entities, initial reports will be due within 1 year after the implementation of FinCEN’s final regulations.

When previously-filed beneficial ownership information changes (for example, as a result of a transfer or death), reporting companies will have 30 days to file an updated report.

The CTA indicates that failure to provide a report will result in a civil penalty of up to $500 for each day of noncompliance plus a fine of up to $10,000. Noncompliance can trigger more severe criminal sanctions, including up to two years’ imprisonment.

How is a report filed?

In its December 7, 2021 notice of proposed rulemaking, FinCEN indicated that in addition to its significant regulatory effort, it is designing and building a new IT system — the Beneficial Ownership Secure System, or BOSS — to collect and provide access to beneficial ownership information. So, it is expected that the filing of beneficial ownership information reports will be electronic.

The issuance of final regulations by FinCEN and their effective date remains unclear at the moment. Presumably, FinCEN will wait to have the BOSS system up and running before launching the new reporting requirements.

The information contained in this document does not constitute legal advice.

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