CORPORATE TRANSPARENCY ACT OVERVIEW PART 3: WHAT ELSE YOU SHOULD KNOW

This is Part 3 of our three-part series on the Corporate Transparency Act (CTA). The U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) is establishing this centralized U.S. reporting requirement and government database for certain new and existing domestic and foreign companies to prevent the exploitation of anonymous shell companies that are being used to hide illicit funds or conduct other illegal activity.

In Part 1, we outlined required disclosures under the CTA, and in Part 2 we provided an overview of the CTA’s exemptions. If the CTA’s reporting obligations do apply to your company, it will be important to understand the corresponding deadlines, and what it will mean when the reports are provided to FinCEN.

WHAT DEADLINES APPLY TO YOUR COMPANY?

If you are a business owner that forms a new entity on or after the effective date of the new reporting requirements, your business will need to file its initial report within 14 calendar days of the date the company is created or registered. Reporting companies that were created or registered before the effective date would have one year to file their initial reports in the database. FinCEN, however, has not yet announced an effective date for the CTA’s reporting obligations, so it is vital for businesses to monitor the new rule because failure to timely report to FinCEN can result in daily civil penalties and potential criminal exposure.

If your company qualifies for an exemption, it will also be crucial to keep an eye on whether that exemption no longer applies, in which case your company must file a report with FinCEN within 30 calendar days after the date it no longer qualifies as exempt.

Companies also need to make sure to keep track of the identity of its beneficial owners, and if any beneficial owners change, an update to FinCEN would need to be made within 30 days of the change.

Additionally, if your company learns that the information initially reported is incorrect, FinCEN is allowing a safe harbor of 14 days after realization to file a corrected report, if the corrected report is also filed within 90 days after the date that the inaccurate report was filed.

WHO HAS ACCESS TO THE REPORTS?

The reports submitted to FinCEN will not be publicly available, and any unlawful disclosure will result in penalties. However, the CTA does allow FinCEN to disclose information, upon request, to U.S. federal law enforcement agencies, financial institutions trying to meet customer due diligence requirements if the consent of the reporting company is obtained, or state, local and tribal law enforcement agencies pursuant to a court order.

NEXT STEPS

Now that the comment period seeking public input is closed and FinCEN works to bolster the United States’ corporate transparency framework, it is important that your company proactively review the CTA and its effect on your business.