The Financial Crimes Enforcement Network of the Department of Treasury (FinCEN) has made it clear that the reporting obligations imposed on corporations, LLCs, and other “similar” entities under the new Corporate Transparency Act (CTA) are anything but clear.
The CTA, which likely will present a significant filing burden for many small and medium-sized businesses, was part of the National Defense Authorization Act, passed by Congress on January 1, 2021. Among other things, the CTA makes FinCEN responsible for collecting data surrounding the ownership of corporations and other entities. The CTA requires “Reporting Companies” to report the identities and information concerning their “Beneficial Owners” at the time of formation or registration of the Reporting Company and within one year after the date on which there is change with respect to any information previously reported. Entities that were in existence at the time of adoption of the regulations under the CTA and that qualify as Reporting Companies also have a reporting obligation. The effectiveness of the CTA is subject to the adoption of Regulations, which is anticipated to take place within the next two years.
Since the passage of the CTA, commenters have voiced a host of questions concerning the meanings of many of its terms in the CTA and the application of the CTA itself. For the purpose of drafting Regulations, FinCEN recently posted an extensive list of questions with respect to which it is seeking public input. The following is a relatively small sample of this extensive list of questions, but it provides a good flavor of the complexity and potential implications of this new act:
Finally, FinCEN acknowledges that “[t]he process of forming legal entities may have ramifications that extend beyond the legal and economic consequences for legal entities themselves, and the reporting of beneficial ownership information about legal entities may have ramifications that extend beyond the effect of mobilizing such information for AML/CFT purposes.” Very significantly, it asks “[h]ow can FinCEN best engage representatives of civil society stakeholders that may not be directly affected by a beneficial ownership information reporting rule but that are concerned for such larger ramifications?”
Without doubt, the CTA, regardless of FinCEN’s attempt to answer these questions in Regulations, will bedevil business owners for many years to come.