The Act

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.”

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.

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.

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. “

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

“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).”

“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.”

“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. \”