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Industry Updates

The US Corporate Transparency Act - Frequently Asked Questions

13 Apr 2023

On 1 January 2021, the US Congress passed the Corporate Transparency Act (the “CTA”) imposing new reporting obligations on US business entities and potential disclosure of personal information to the Financial Crimes Enforcement Network (“FinCEN”) about their beneficial owners if the US business entities are determined to be subject to the CTA. The CTA is an important step for the US to prevent money laundering and terrorist financing. This helps to bring the US into compliance with international anti-money laundering standards.

On 30 September 2022, FinCEN issued a final rule implementing the beneficial ownership information reporting requirements with an effective date of 1 January 2024 (the “Final Rule”).

Answers have been set out below to some frequently asked questions that your institution may have based on the CTA Final Rule. Institutions would be well advised to work with their US counsel to gain a good understanding of this far-reaching legislation.

Will the CTA have a large impact on the entity formation and management process in the US?

Yes. In the regulatory analysis detailed in the Final Rule, FinCEN estimates that there will be at least 32.6 million “Reporting Companies” in existence when it becomes effective. The CTA will have a major impact on how entities are formed and registered in the US and organisations should begin putting procedures in place immediately in order to meet the filing requirements. However, it is important to note that there are exemptions.

When will the CTA go into effect?

The CTA becomes effective on 1 January 2024.

Who must file?

A corporation, limited liability company “or other similar entity” created in the US or registered to do business in the US by filing a document with the secretary of state or similar office under the laws of a US state or Indian Tribe is required to file with FinCEN (a “Reporting Company”). This includes, but is not limited to, companies, limited liability companies, limited liability partnerships, limited partnerships and business trusts.

Can a non-US entity be considered a Reporting Company?

Yes. It is important to note that non-US entities will fall under the definition of a Reporting Company if they are registered to do business with a US secretary of state (or a similar office) or an Indian Tribe.

What information must be reported to FinCEN?

Each Reporting Company will submit to FinCEN a beneficial owner information report (“BOI Report”) containing the following information:

  • the Reporting Company itself:
    • Its full legal name and any trade or alternative ‘doing business as’ names through which the Reporting Company is engaging in business;
    • The street address of the “principal place of business” or primary street address of the location in the US where it conducts business (PO boxes or the address of a company formation agent or other third party are not acceptable);
    • Its jurisdiction of formation or registration; and 
    • IRS issued tax identification number (“US TIN”).
  • In addition to the above, a Foreign Reporting Company will also be required to provide:
    • Its jurisdiction of first registration in the US; and
    • Its country / jurisdiction of formation.
  • In addition:
    • Foreign Reporting Companies without a US TIN will be required to provide a foreign tax identification number and the name of the relevant jurisdiction.
    • Reporting Companies will not be allowed to report a DUNS or LEI in lieu of a TIN. 
    • In the event a foreign Reporting Company is not able to obtain a foreign TIN, FinCEN will consider appropriate guidance or relief depending on the circumstances.
  • The Company Applicant(s):
    • The individual who directly files the document to create or register the Reporting Company with a US state or Indian Tribe; and
    • The individual who is primarily responsible for directing or controlling such filing if more than one individual is involved.
    • An Existing Reporting Company formed prior to 1 January 2024 will not be required to report its Company Applicants on its initial BOI Report.
    • Changes to the Company Applicant(s) are not reportable.
  • Its Beneficial Owner(s): 
    • Anyone who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise:
    • Exercises “substantial control” over the Reporting Company; or
    • Owns or controls not less than 25% of the “ownership interests” of the Reporting Company

What information must be reported on individuals?

The CTA requires each Reporting Company to submit to FinCEN a BOI Report identifying each of its Company Applicants and Beneficial Owners:
  • Full legal name;
  • Date of birth;
  • Current residential address (in the case of a Company Applicant who files a document to create or register a Reporting Company in the course of such individual’s business, a business street address is acceptable); and
  • A unique identifying number from a non-expired identification document with the underlying document scanned to FinCEN as part of the BOI Report.

Acceptable identification documents include:

  • A non-expired (i) US passport, (ii) US state or local issued ID, or (iii) state issued driver's license or, if an individual lacks these items, a non-expired foreign passport;
  • An image of such document; and
  • The jurisdiction that issued the identification document.

In lieu of the above information, a Reporting Company may provide a Company Applicant or Beneficial Owner’s FinCen Identifier (see below for a detailed explanation).

Who is considered to exercise “substantial control” over the Reporting Company?

  • Anyone serving as a senior officer of a Reporting Company;
  • Anyone exercising authority over the appointment or removal of any senior officer or a majority of the board of directors or managers (or similar body) of a Reporting Company;
  • Anyone directing, determining, or substantially influencing important decisions made by the Reporting Company; and
  • Catch-all provision: any other individual who is exercising any form of substantial control over the Reporting Company.

Who is considered to have ownership interest?

  • Any individual who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise owns or controls not less than 25% of the ownership interests of the entity;
  • In the case of a Reporting Company whose ownership interests are held in trust, other individuals with authority to dispose of trust assets, such as trustees, may be considered as controlling the ownership interests held in trust, as will grantors or settlors that have retained the right to revoke the trust, or to otherwise withdraw the assets of the trust; and
  • Catch-all provision: any individual who has entered into any other instrument, contract, arrangement, understanding, relationship, or other mechanism used to establish ownership.

Can a Company Applicant or Beneficial Owner provide information in lieu of their personal information when the Reporting Company files its BOI Report with FinCEN?

Yes. Individuals can provide their BOI Report to FinCEN to obtain a “FinCEN Identifier”. The FinCEN Identifier can be provided in lieu of their personal information when the Reporting Company files its BOI Report with FinCEN. It is important to note that the Final Rule does not contemplate a de-registration process, so the individuals with the FinCEN Identifier are responsible for making updates or corrections to their beneficial owner information on an indefinite basis by submitting an updated application to FinCEN, and are subject to the same timelines and terms as updates or corrections to a BOI Report by a Reporting Company. FinCEN is continuing to consider these issues and intends to provide further guidance before the effective date.

When to file?

Reporting Companies will be required to abide by the following timeframes:

  • One year for Reporting Companies created or registered to do business in the US prior to 1 January 2024, which will have until 1 January 2025 to file their initial BOI Report with FinCEN;
  • 30 calendar days for domestic Reporting Companies created, or foreign Reporting Companies registered to do business in the US for the first time, on or after the effective date of the Final Ruleto file their initial BOI Report with FinCEN1. The trigger to begin the reporting period is the earlier of the date on which:
    • A Reporting Company receives actual notice that its creation (or registration) has become effective; or
    • A Secretary of State, or similar office, first provides public notice, such as through a publicly accessible registry, that the domestic Reporting Company has been created or the foreign Reporting Company has been registered;
  • 30 calendar days for updates if there is a change in the information previously reported to FinCEN; and
  • 30 calendar days to file a corrected report from the date the Reporting Company becomes aware or has reason to know that the information previously provided to FinCEN was inaccurate and remains inaccurate.

On 28 September 2023, FinCEN proposed an amendment to the BOI reporting rule that would temporarily extend the filing deadline from 30 days to 90 days for entities created or registered on or after 1 January 2024 and before 1 January 2025.

Are there exemptions?

Yes. The Final Rules specifically exclude 23 types of entities from the definition of Reporting Company. In general, the exceptions apply to entities that already disclose beneficial ownership information through other federal laws / regulations or those entities which are impracticable for money-laundering activities. Exempted entities may include publicly-traded companies, tax-exempt entities and companies operating in highly-regulated industries, such as banks, federal or state credit unions, money transmitting businesses, insurance companies, certain pooled investment vehicles, public utilities companies, etc. If an entity is exempt then no filings at all are required. Penalties will be due if an exemption is incorrect or changes, and notifications and filings are not made. Please consult your legal advisors to determine what exemptions may apply.

Are there penalties for non-compliance?

Yes. Failure to provide beneficial ownership information to FinCEN under the CTA may result in both civil and criminal penalties. An individual or entity that fails to provide the required information will be liable for a civil penalty of up to US$500 for each day a violation continues and may be fined up to US$10,000 and imprisoned up to two years for a criminal violation.

Can FinCEN share this information?

Yes, in limited circumstances. Given the sensitivity of the reportable information, the CTA imposes strict confidentiality, security, and access restrictions on the data. FinCEN is authorised to disclose reportable beneficial owner information to a statutorily defined group of governmental authorities and financial institutions, in limited circumstances.

Will the Maples Group be able to assist our clients with these new filing requirements?

Our Delaware office will be able to assist clients in complying with the CTA filing requirements. The Maples Group's Delaware office is long established and our expert team, specialising in US entity management, has vast experience with the US corporate environment, as well as all state and federal filing requirements. Across our network, we have intimate knowledge of similar beneficial ownership regimes around the world, utilising well established and market tested procedures to manage the vast numbers of filings potentially required by the CTA.

Who can we contact with any additional questions on the CTA?

For further information on the CTA, please see our recent article: CTA: Practical Issues for Entity Management or contact the individuals below in our Delaware office.

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