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Your Entity May be Fined $500/Day If It Does Not File a FinCen Report

January 1, 2022, is the day that the Corporate Transparency Act (CTA) became effective.  The CTA requires almost all LLCs, for profit corporations, limited partnerships and other entities created by filing a document with a state to file a report with the Financial Crimes Enforcement Network (“FinCen”) of the U.S. Treasury that discloses information about the entity, its beneficial owners and the person who filed the entity’s formation document with its formation state.

Warning: If you are an owner of a U.S. company you need to read this post to learn if your company must file a report with FinCen and avoid a $500/day non-filing penalty.  

Corporate Transparency Act Compliance

The CTA requires all “reporting companies” to file a report with FinCen that discloses information about the company, its beneficial owners and the person who created the company.  Almost all companies of every type created in the U.S. at ANY TIME are “reporting companies.” See the definition of a reporting company.

An entity is not a reporting company if it: (1) employs more than 20 employees on a full-time basis in the United States, filed a prior year U.S. federal income tax return that reported more than $5,000,000 in gross receipts or sales, including the receipts or sales of other entities owned by the entity and other entities through which the entity operates and has an operating presence at a physical office within the United States, (2) is a bank or credit union, (3) is an insurance company, or (4) is a public utility.

There are many other types of entities that are excluded from the definition of a reporting company, but most companies are not excluded and are reporting companies.  See the 24 types of entities that are excluded from the definition of a reporting company.

Information that Must Be Disclosed in the FinCen Report

There are three types of information that reporting companies must disclose to FinCen.  The types of information are:

1. Information About the Reporting Company: The reporting company must file a report with FinCen that discloses:

a. its legal name
b. any alternative names through which the Company is engaging in business (d/b/a names or trade names),
c. its business street address,
d. its jurisdiction of formation, and
e. a unique identification number such as an EIN, TIN or FinCEN identifier (a number issued to an entity by FinCen) .

2. Information about Beneficial Owners: A Beneficial Owner is anybody (person, entity, trust etc.) who owns twenty-five percent or more of the reporting company and each individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise exercises substantial control over the reporting company. A trustee of a trust that is the sole owner of an entity or that owns twenty-five percent or more of the entity is a Beneficial Owner.

The reporting company must report the following information about each Beneficial Owner:

a. The full legal name of the Beneficial Owner;
b. The Beneficial Owner’s birth date;
c. The current residential or business street address of the Beneficial Owner;
d. A unique identifying number (i.e., non-expired passport issued by the U.S., non-expired personal identification card, or non-expired driver’s license issued by a state) or FinCEN Identifier issued to the Beneficial Owner; and
e. A picture of the Beneficial Owner’s non-expired driver’s license, passport, id card or nonexpired passport issued by a foreign government from which the unique identifying number was obtained.

A person has substantial control of the reporting company if the person: (1) serves as a senior officer of the reporting company; (2) has authority over the appointment or removal of any senior officer or dominant majority of the board of directors (or similar body) of the reporting company; and (3) directs, determines, or decides or has substantial influence over important matters of the reporting company.

3. Information About the Reporting Company’s Applicant.  The reporting company’s applicant is the individual who filed the document that formed the entity.  Examples of formation documents are Articles of Organization, Articles of Incorporation and a Certificate of Limited Partnership.  Anyone who directs or controls the filing of the formation document by another is also an applicant. If you or somebody in your company formed the reporting company, you or that person is the reporting company’s applicant and his or her information needs to be included in the reporting company’s FinCen report.

The information about the applicant that the reporting company needs to include in its report to FinCen is the same information required of Beneficial Owners.

Penalties for Not Complying with the Corporate Transparency Act

The CTA imposes civil fine up to $500/day and criminal penalties for willfully providing false or fraudulent information in its FinCen report or willfully failing to report complete or updated information to FinCEN.

If the reporting company willfully fails to submit the required information on or before the due date of the report or if the reporting company provides false or fraudulent information the U.S. Treasury may cause the reporting company to be subject to:

(1) a civil penalty of not more than $500 for each day that the violation continues,
(2) a fine of up to $10,000,
(3) imprisonment for up to two years, and/or
(4) both a fine and imprisonment.

If the reporting company submits incorrect information to FinCen, the CTA contains a safe harbor allowing the reporting company to avoid civil and criminal penalties if the reporting company did not knowingly submit inaccurate information with the original report and voluntarily submits a report containing corrected information within 90 days of submitting the original report.

Due Date of the Reporting Company’s CTA’s FinCen Report

If the reporting company was formed after 2021 it must file its CTA report with FinCen not later than fourteen days after the entity was formed. If the reporting company was formed before January 1, 2022, it must file its CTA report with FinCen not later than one year after the date the U.S. Treasury Regulations for the CTA become final. At this time the regulations have not been proposed so nobody knows when the regulations will become final and the CTA report for pre-2022 or post 2021 entities will be due.

The U.S. Treasury has also not proposed or finalized the regulations that describe how entities file the CTA report with FinCen. Therefore, it is not possible at this time to comply with this new entity filing requirement.  To learn when your Company’s CTA report will be due and how to file the report review our Corporate Transparency Act website from time to time. Our site will provide the latest information on the CTA and required report deadlines.

Status of the CTA

This article was published on January 1, 2022, before all the CTA regulations were proposed and there were no effective CTA regulations.  We won’t know how to file a FinCen report until the regulations become final.  To keep up to date with CTA developments you should subscribe to our CTA newsletter.

By |2022-01-01T10:08:25-07:00January 1st, 2022|Important Info|

Fact Sheet: Beneficial Ownership Information Reporting Notice of Proposed Rulemaking (NPRM)

The Financial Crimes Enforcement Network (FinCen), an agency of the U.S. Treasury, published the following fact sheet on December 7, 2021.

Millions of corporations, limited liability companies, and other entities are formed within the United States each year. While such entities play an essential and legitimate role in the U.S. and global economies, they can also be used to facilitate illicit activity, such as corruption, and enable those who threaten U.S. national security to access and transact in the U.S. economy. Few jurisdictions in the United States require legal entities to disclose information about their beneficial owners—that is, the people who actually own or control a company—or the persons forming them. This creates opportunities for corrupt actors, criminals, and terrorists to remain anonymous while facilitating illicit activity through legal entities in the United States.

Corruption, in particular, allows bad actors to abuse their authority and extract unfair gains at the expense of others. Treasury’s strategy to combat corruption will make our economy—and the global economy—stronger, fairer, and safer from criminals and national security threats. As part of a whole-of-government commitment to democracy, Treasury is taking a number of actions to fight corruption and prevent it from undermining trust in democratic institutions. Among these actions is the implementation of the Corporate Transparency Act (CTA), which was enacted as part of the Anti-Money Laundering Act of 2020 within the National Defense Authorization Act for Fiscal Year 2021.

Today, FinCEN issued a Notice of Proposed Rulemaking to give the public an opportunity to review and comment on the proposed rule to implement the CTA’s beneficial ownership information (BOI) reporting provisions. The proposed rule would significantly enhance the ability to protect the U.S. financial system from illicit use, and provide essential information to law enforcement and others help prevent corrupt actors, terrorists, and proliferators from hiding money or other property in the United States.

In developing the proposed regulation, FinCEN has also aimed to minimize burdens on reporting companies, including small businesses. It is anticipated to cost reporting companies less than $50 apiece to prepare and submit an initial BOI report. In comparison, the state formation fee for creating a limited liability company (LLC) can cost between $40 and $500, depending on the state.

Requiring entities to submit beneficial ownership information to FinCEN and providing timely access to this information to law enforcement, financial institutions, and other authorized users is intended to help combat corruption, money laundering, terrorist financing, tax fraud, and other illicit activity.

The ultimate goal of this regulatory proposal is to combat, to the broadest extent possible, the proliferation of anonymous shell companies that facilitate the flow and sheltering of illicit money in the United States.

Key Elements of the Proposed Beneficial Ownership Information Reporting Regulation

The Notice of Proposed Rulemaking would help stop bad actors from using legal entities to hide illicit funds behind anonymous shell companies or other opaque corporate structures.

The proposed rule describes who must file a BOI report, what information must be reported, and when a report is due. Specifically, the proposed rule would require reporting companies to file reports with FinCEN that identify two categories of individuals: (1) the beneficial owners of the entity; and (2) individuals who have filed an application with specified governmental or tribal authorities to form the entity or register it to do business.

Reporting Companies

  • The proposed rule identifies two types of reporting companies: domestic and foreign. A domestic reporting company would include a corporation, limited liability company, or any other entity created by the filing of a document with a secretary of state or similar office under the law of a state or Indian tribe. A foreign reporting company would include a corporation, limited liability company, or other entity formed under the law of a foreign country and that is registered to do business in any state or tribal jurisdiction. Under the proposed rule and in keeping with the CTA, twenty-three types of entities would be exempt from the definition of “reporting company.”
  • FinCEN expects that these definitions would include limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships, in addition to corporations and LLCs, because such entities appear typically to be created by a filing with a secretary of state or similar office.
  • Other types of legal entities, including certain trusts, would appear to be excluded from the definitions to the extent that they are not created by the filing of a document with a secretary of state or similar office. FinCEN recognizes that the creation of many trusts does not involve the filing of such a formation document. The NPRM, however, seeks public comment on state and Indian Tribe law practices regarding trust formation to better understand and define the scope of the rule.

Beneficial Owners

  • Under the proposed rule, a beneficial owner would include any individual who (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company. The proposed regulation defines the terms “substantial control” and “ownership interest” and sets forth standards for determining whether an individual owns or controls 25 percent of the ownership interests of a reporting company. In keeping with the CTA, the proposed rule exempts five types of individuals from the definition of “beneficial owner.”
  • In defining the contours of who has “substantial control,” the proposed rule sets forth a range of activities that could constitute “substantial control” of a company. This list would capture anyone who is able to make significant decisions on behalf of the entity. FinCEN’s approach is designed to close loopholes that would allow corporate structuring that obscures owners or decision-makers. This is crucial to unmasking shell companies.

Company Applicants

  • In the case of a domestic reporting company, the proposed rule defines a company applicant to be the individual who files the document that forms the entity. In the case of a foreign reporting company, a company applicant would be the individual who files the document that first registers the entity to do business in the United States.
  • In both cases, the proposed regulation specifies that anyone who directs or controls the filing of the relevant document by another would also be a company applicant.

Beneficial Ownership Information Reports

  • When filing BOI reports with FinCEN, the proposed rule would require a reporting company to identify itself and report four pieces of information about each of its beneficial owners and company applicants: name, birthdate, address, and a unique identifying number from an acceptable identification document (and the image of such document).
  • If an individual provides his or her BOI to FinCEN, the individual can obtain a “FinCEN identifier,” which can then be provided to FinCEN in lieu of other required information about the individual.
  • The proposed regulations also include a voluntary mechanism to allow reporting of the Taxpayer Identification Number (TIN) for a beneficial owner or company applicant.

Timing

  • Under the proposed rule, BOI report timing would depend on (1) when a reporting company was created or registered, and (2) whether the report at issue is an initial report, an updated report providing new information, or a report correcting erroneous information in a previous report.
  • Domestic reporting companies created before the effective date of the final regulation would have a year to file their initial reports; reporting companies created or registered after the effective date would have 14 days after their formation to file. The same deadlines would apply to existing and newly registered foreign reporting companies.
  • Reporting companies would have 30 days to file updates to their previously filed reports, and 14 days to correct inaccurate reports after they discover or should have discovered the reported information is inaccurate.

Next Steps

  • The comment period for the NPRM is open for sixty days until February 7, 2022.
  • The BOI reporting NPRM is one of three rulemakings planned to implement the CTA. FinCEN will engage in additional rulemakings to (1) establish rules for who may access BOI, for what purposes, and what safeguards will be required to ensure that the information is secured and protected; and (2) revise FinCEN’s customer due diligence rule following the promulgation of the BOI reporting final rule.
  • In addition, FinCEN is developing the infrastructure to administer these requirements, such as the beneficial ownership information technology system.
By |2021-12-31T08:23:20-07:00December 7th, 2021|FinCen Statements|

CTA: FinCEN to Collect Beneficial Ownership Information

This article starts with:

“The Corporate Transparency Act (“CTA”) was enacted as part of the Anti-Money Laundering Act of 2020. The purpose of the CTA is to deter anonymous owners of corporations, limited liability companies, and other entities from facilitating illicit activity such as money laundering, financing terrorism, tax fraud, and acts that would harm national security interests.  The CTA requires the Financial Crimes Enforcement Network (“FinCEN”), a unit of the Treasury Department, to maintain a national registry of “beneficial ownership” information collected from certain “reporting companies.”

By |2021-06-25T08:41:28-07:00June 24th, 2021|The Act|

The Corporate Transparency Act Introduces Beneficial Ownership Disclosure Requirements

This article states:

“As for the CTA, it requires certain “reporting companies” to report the name, date of birth, current address, and unique identification number (from a passport or driver’s license, for example) of their “beneficial owner(s)” to FinCEN.  This information must be updated every year to reflect any changes.

Subject to certain exceptions, a “beneficial owner” is defined in the CTA as “any individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise:

(i)   exercises substantial control over the entity; or

(ii)  owns or controls not less than 25 percent of the ownership interests of the entity.”

Moreover, under the CTA, the term “reporting company” means any corporation, limited liability company, or similar entity”

By |2021-06-23T07:44:02-07:00June 21st, 2021|The Act|

Biden Ramps Up Fight Against Corruption

A June 4, 2021, Wall St. Journal article states:

“President Biden is making anticorruption a central pillar of his administration’s national security agenda, issuing a directive the White House said would help further collaboration between government agencies on issues including kleptocracy and illicit finance. . . . In a call with reporters, a senior administration official highlighted several areas in which the White House already has taken steps to bolster its commitment to anticorruption. Those efforts include steps to implement the Corporate Transparency Act, a law Congress approved earlier this year that reforms U.S. anti-money-laundering laws. . . . The legislation calls for the U.S. Treasury Department to build a corporate-ownership registry that lawmakers hope will prevent the use of anonymous shell companies for illicit purposes.”

By |2021-06-07T12:57:01-07:00June 7th, 2021|The Act|

FinCEN Commences Rulemaking Process for Implementation of Corporate Transparency Act Requiring Disclosure of Beneficial Ownership Information

The Harvard Law School Forum on Corporate Governance posted an article on May 11, 2021, about the Corporate Transparency Act.

On April 5, 2021, the Financial Crimes Enforcement Network, a bureau of the United States Department of the Treasury (“FinCEN” and “Treasury,” respectively) issued an advance notice of proposed rulemaking (“ANPRM”) beginning the process of implementing regulations under the Corporate Transparency Act (“CTA”). Enacted by Congress on Dec. 31, 2020, as part of the National Defense Authorization Act, the CTA requires certain companies created or registered to do business in the United States (each, a “Reporting Company”) to report certain identifying information, such as beneficial owners of 25% or more and certain control persons, directly to FinCEN. That information is to be held in a non-public database maintained by FinCEN and will be shared with law enforcement and federal regulators, among others. The reporting obligations discussed herein will only take effect upon the promulgation of final regulations by FinCEN, which FinCEN is required to issue by Jan. 1, 2022. The ANPRM is the first step in this rulemaking process and requests public comment on numerous questions relevant to the implementation of the CTA. Comments are due May 5, 2021. Additionally, within a year of issuing a final rule under the CTA, FinCEN is required to issue implementing regulations to revise the existing customer due diligence (“CDD”) rule to align it with the CTA implementing regulations.

This post highlights certain aspects of the CTA and the ANPRM including implications of the CTA on investment funds and their advisers.

By |2021-06-07T12:57:15-07:00May 11th, 2021|The Act|

FinCEN Commences Rulemaking Process for Implementation of Corporate Transparency Act Requiring Disclosure of Beneficial Ownership Information

Attorneys from the law firm of Schulte, Roth & Zabel wrote an article about FinCen’s request for input on the proposed regulations under 31 U.S.C. 5336, aka, the Corporate Transparency Act.

“On April 5, 2021, the Financial Crimes Enforcement Network, a bureau of the United States Department of the Treasury (“FinCEN” and “Treasury,” respectively) issued an advance notice of proposed rulemaking (“ANPRM”)[1] beginning the process of implementing regulations under the Corporate Transparency Act (“CTA”).[2] Enacted by Congress on Dec. 31, 2020, as part of the National Defense Authorization Act, the CTA requires certain companies created or registered to do business in the United States (each, a “Reporting Company”) to report certain identifying information, such as beneficial owners of 25% or more and certain control persons, directly to FinCEN.[3] That information is to be held in a non-public database maintained by FinCEN and will be shared with law enforcement and federal regulators, among others. The reporting obligations discussed herein will only take effect upon the promulgation of final regulations by FinCEN, which FinCEN is required to issue by Jan. 1, 2022. The ANPRM is the first step in this rulemaking process and requests public comment on numerous questions relevant to the implementation of the CTA. Comments are due May 5, 2021. Additionally, within a year of issuing a final rule under the CTA, FinCEN is required to issue implementing regulations to revise the existing customer due diligence (“CDD”) rule[4] to align it with the CTA implementing regulations.[5]

This Alert highlights certain aspects of the CTA and the ANPRM including implications of the CTA on investment funds and their advisers.”

By |2021-06-07T12:57:42-07:00April 26th, 2021|The Regulations|

Beneficial Ownership Information Reporting Requirements

On April 5, 2021, the Financial Crimes Enforcement Network (FinCEN) posted a notice of proposed rulemaking with respect to the Corporate Transparency Act.  The notice starts:

“FinCEN is issuing this advance notice of proposed rulemaking (ANPRM) to solicit public comment on questions pertinent to the implementation of the Corporate Transparency Act (CTA), enacted into law as part of the National Defense Authorization Act for Fiscal Year 2021 (NDAA). This ANPRM seeks initial public input on procedures and standards for reporting companies to submit information to FinCEN about their beneficial owners (the individual natural persons who ultimately own or control the reporting companies) as required by the CTA. This ANPRM also seeks initial public input on FinCEN’s implementation of the related provisions of the CTA that govern FinCEN’s maintenance and disclosure of beneficial ownership information subject to appropriate protocols.

Written comments on this ANPRM must be received on or before May 5, 2021.”

The notice is lengthy, but recommended reading for anyone who wants to learn more about the Corporate Transparency Act.

By |2021-06-07T12:58:04-07:00April 5th, 2021|The Regulations|

Buying a Home Through an LLC Is Not as Anonymous as It Used to Be

A Wall St. Journal article starts with:

“New reporting requirements mean the financial structure is no longer a reliable way to hide who owns a property. . . . Confidentiality is the reason many celebrities use LLCs to own their homes, since that allows them to shield their identity and avoid having their true name and home address posted in county registries, which are easily accessible online in many states. But due to new laws designed to crack down on money laundering and tax evasion, buyers may find that even an LLC doesn’t protect their personal information from disclosure these days.

By |2021-06-07T12:56:38-07:00March 31st, 2021|The Act|

The Corporate Transparency Act

This article dated February 23, 2021, was written by Ellen Grady and Drew Reitz of Pillsbury Winthrop Shaw Pittman LLP.

“A new federal law will require certain U.S. entities to report the personal information of their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury. . . .

The Corporate Transparency Act (the Act), enacted on January 1, 2021, will impose beneficial ownership reporting obligations on many corporations, limited liability companies, and other ‘similar entities,’ which the Act defines as a ‘reporting company.’ The stated intent of the Act is to establish federal legislation for the collection of beneficial ownership information to protect U.S. ‘national security interests; protect interstate and foreign commerce; better enable critical national security, intelligence, and law enforcement efforts to counter money laundering, the financing of terrorism and other illicit activity,’ among other goals. “

By |2021-05-29T14:08:10-07:00February 23rd, 2021|The Act|

Corporate Transparency Act: New Federal Reporting Requirements for Certain U.S. Formed or Registered Entities

On January 1, 2021, Congress passed the Corporate Transparency Act (CTA) as part of the overall 2021 National Defense Authorization Act and under the scope of the Anti-Money Laundering Act of 2020 (AMLA). The passage of the CTA represents one of the more sweeping and comprehensive changes to efforts to combat money laundering, terrorism financing, organized crime, and other financial crimes since the passage of the USA PATRIOT Act in 2001. The AMLA establishes a database as a means to facilitate a voluntary public-private information-sharing partnership among law enforcement agencies, national security agencies, financial institutions, and the Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury for such purposes. The AMLA requires the Secretary of the Treasury to promulgate regulations that establish procedures for the protection of information shared and exchanged between FinCEN and the private sector, including information permitted to be given to financial institutions pursuant to the AMLA in connection with the AMLA’s purposes

By |2021-05-29T14:37:05-07:00February 17th, 2021|The Act|

The Corporate Transparency Act – What You Need to Know

What Do You Need To Know Today?

What the Act Requires. The Act requires certain U.S. companies, called ‘reporting companies,’ to submit a report to FinCEN identifying their ‘beneficial owners’ and the persons who organized such companies, called ‘applicants.’

There is No Filing Requirement Today. You do not need to do anything today. Rather, the filing requirement will commence upon the effective date of the implementing regulations developed by the secretary of the treasury. Such regulations will be adopted on or before Jan. 1, 2022.

We Don’t Know What We Don’t Know. Prior to the adoption of the implementing regulations, there are many questions we cannot address. For example, we do not know where and how the filing will be made. The filing could be made electronically directly to FinCEN or FinCEN may partner with the states to permit filings in connection with organizational filings. We simply do not know.

Who Must Report? The definition of reporting company is very broad and includes corporations, limited liability companies, or similar entities formed by filing a document with a secretary of state’s office — or equivalent — or a foreign entity that is registered to do business in the U.S.

Who Is Exempt? There are many exceptions to the definition of ‘reporting company’ that exclude certain businesses from the Act’s reporting requirements. Two types of companies are most likely to be excluded: (a) companies that are U.S.-owned with a real, physical operating presence, including more than 20 employees, in the U.S.; and (b) companies in heavily-regulated industries (e.g., banks, credit unions, registered brokers or dealers, and publicly-traded companies).”

By |2021-05-29T14:36:53-07:00February 15th, 2021|The Act|

The Corporate Transparency Act: Augmented Federal Anti-Money Laundering Legislation Brings New Reporting Requirements of Company Ownership

“Through the CTA, Congress directs the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to establish and maintain a national registry of beneficial owners of entities that are deemed “reporting companies.” In so acting, Congress stated that bad actors seek to conceal their ownership of business entities through the use of shell companies in order to facilitate illicit activities, including money laundering, the financing of terrorism, human and drug trafficking, and securities fraud. Congress observed that the lack of state laws requiring companies to identify their beneficial owners has arguably enabled such persons to exploit these entities to further criminal activities.”

By |2021-05-29T14:35:23-07:00January 29th, 2021|The Act|

What You Need to Know about the Corporate Transparency Act

“On January 1, 2021, Congress passed the National Defense Authorization Act for Fiscal Year 2021, which includes the Corporate Transparency Act (the CTA).1 The CTA requires all U.S. businesses to file “beneficial ownership” information with the Financial Crimes Enforcement Network (FinCEN). In sum, the CTA is designed to ban the anonymous shell companies that criminals and certain foreign officials use to hide and move corrupt proceeds and other illicit financing. \”

By |2021-05-29T14:36:41-07:00January 12th, 2021|The Act|
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