1. When do Reports Need to be Filed?

CTA is not effective now, however, it will become effective as soon as implementing regulations are promulgated by the Secretary of the Treasury (not later than January 1, 2022). After the effective date, existing “Reporting Companies” will have two years to submit reports to the Financial Crimes Enforcement Network (FinCEN), while newly formed or registered “Reporting Companies” must submit reports to FinCEN at the time that they are formed or registered. “Reporting Companies” need to update reports that they submitted no later than one year after there is a change in previously reported beneficial ownership information.

2. Who has to File Reports?

The new beneficial ownership information report must only be filed by a “Reporting Company”, which according to the CTA “means a corporation, limited liability company, or other similar entity that is – (i) created by the filing of a document with the secretary of state or a similar office under the law of a State or Indian Tribe; or (ii) formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian Tribe. . . .” However, CTA also includes a long list of business entities that are exempt from the law’s requirements. The exemptions are highly technical and Allen Matkins can help you to analyze whether they apply to any of your current or proposed business entities. One exemption from CTA is for companies that have all of the following:

• 20 or more full-time employees;
• sales of over $5 million; and
• an operating presence at a physical United States office.

A number of other exemptions are available, including for public companies, government entities, certain regulated companies, and nonprofit organizations.

3. What is Included in Reports?

Reports under the CTA must include the following information for applicants and “Beneficial Owners”:

• full legal name;
• date of birth;
• residential or business street address; and
• unique identifying number from a driver’s license, United States passport, or other identification document.

Applicants are individual persons who form a United States business entity or register a foreign business entity. “Beneficial Owners” are any individual persons who directly or indirectly, with respect to an entity, either own or control 25% of the entity or exercise “substantial control” over the entity. We anticipate that “substantial control” will be defined in pending regulations from the Secretary of the Treasury. “Beneficial Owners” will not include:

• individuals acting as intermediaries or agents on behalf of another;
• employees of the “Reporting Company” whose control derives solely from their employment;
• creditors (unless they otherwise hold 25% ownership or possess “substantial control”);
• minor children when their parent’s information is reported; or
• individuals with a right of inheritance.

4. Are the CTA Reports Publicly Available?

Reports are not public and the CTA requires the Secretary of the Treasury to establish protocols to protect the security and confidentiality of information provided according to this law. However, there are numerous ways in which FinCEN can make beneficial ownership information contained in a report available to third parties, including in response to:

• a request from a Federal national security, intelligence, or law enforcement agency or a State or local law enforcement agency pursuant to a court order;
• a request from certain foreign law enforcement agencies;
• a request from a financial institution with the consent of the “Reporting Company”; or
• a request from certain regulatory agencies.

5. What Are the Penalties for Failure to Comply with CTA?

It is unlawful to willfully provide or attempt to provide false or fraudulent beneficial ownership information or to willfully fail to report complete or updated beneficial ownership information to FinCEN. The CTA provides substantial penalties for violators, including: a federal civil penalty of $500 per day that the violation continues; and a fine of up to $10,000, imprisonment of up to 2 years, or both.

6. Recommendations

Given the serious penalties described above, all companies should be aware of the CTA and monitor further guidance and regulations from FinCEN. Businesses should evaluate now whether or not they may qualify as “Reporting Companies” and should stand ready to work to identify all “Beneficial Owners” and applicants for all of their existing and potential “Reporting Companies.” Allen Matkins is monitoring the developing regulatory landscape and is ready and able to help our clients to comply with the CTA’s legal requirements.