The Corporate Transparency Act (“CTA”) will go into effect January 1, 2024, creating new obligations for millions of companies to report beneficial ownership information with the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”).

Historically, few jurisdictions in the United States have required legal entities to disclose information about their beneficial owners – the individuals who actually own, control, and/or create an entity. The absence of a uniform reporting requirement for beneficial owners was determined to be a vulnerability in the U.S. anti-money laundering and countering the financing of terrorism (AML/CFT) framework. The CTA was enacted to implement reporting requirements to assist law enforcement in detecting and preventing terrorism, money laundering, drug trafficking, tax evasion, and other illicit activity through legal entities created in the United States. FinCEN has issued rules pursuant to the CTA that can be found at 31 CFR §1010.380, and published guidance regarding the CTA and its final rules at https://www.fincen.gov/boi.  

Under the CTA, reporting companies will be required to disclose individuals who (1) own or control at least 25% of the ownership interests of a reporting company, or (2) exercise “substantial control” over the reporting company (regardless of any actual ownership of the legal entity). Reports must be updated within 30 days of any change to information previously reported.

Qualifying reporting companies include companies formed or registered to do business in the United States under a filing with a secretary of state or similar state office (e.g., corporations, limited liability companies, limited liability partnerships). If an entity is not created by such a state filing (e.g., most trusts), then the entity is not subject to the CTA.

Information reported under the CTA will not be made publicly available. However, disclosed information will be accessible (where applicable) to federal and state law enforcement agencies and financial institutions subject to their know-your-customer obligations and reporting company consent.

Domestic and foreign reporting companies in existence as of January 1, 2024 must file an initial report with FinCEN within one year. Reporting companies formed after January 1, 2024 have 90 days after receiving notice of their formation to file their reports with FinCEN.

Reporting violations carry civil and criminal penalties (up to $10,000 and two years’ imprisonment) for willfully providing false information, failing to provide complete information, or failing to update information. Individuals may be held liable for company reporting violations if they caused the failure or were senior officers of the reporting company at the time of the failure. A good faith safe harbor for reporting violations is available in some cases if corrections are made within 90 days of the original filing.

We recommend our clients take steps to conduct an internal review by December 31, 2023 to identify all entities they own and control, wholly or partially, to prepare for the CTA. Our attorneys are available to schedule a compliance consultation before the end of the year to address CTA requirements, applicable exemptions, and the establishment of a compliance protocol going forward.    

If you have any questions regarding the CTA and how it might impact your business, or would like to schedule a compliance consultation, please contact Galbut Beabeau, P.C.