On January 1, 2024, the Corporate Transparency Act, 33 U.S.C. §5336, (the “CTA”) took effect and strict compliance must be met by all entities and individuals to which it applies. The CTA adds reporting requirements for particular beneficial owners in various entities. The CTA’s primary goal is to enhance transparency in corporate ownership to combat financial crimes, and its passage reflects a bipartisan recognition of the importance of addressing vulnerabilities in the U.S. financial system. The history of the CTA underscores the collaborative effort to strengthen national security measures and promote corporate accountability.

The considerations for current and future entities and beneficial owners to keep in mind now that the CTA has become effective are (i) the reporting requirements; (ii) the beneficial ownership information (“BOI”) that must be reported; and (iii) the privacy considerations that come with the CTA. It is important to note that there are twenty-three (23) different categories of entities that are exempt from filing reports in compliance with the CTA. Therefore, seeking legal counsel to determine if your entity must comply with the CTA is important. At this stage in the CTA’s implementation, it is predicted that the CTA largely will have an effect on entities that do not have the following:

• twenty (20) or more employees;
• more than $5,000,000 in gross receipts or sales; and
• an operating presence at a physical office in the United States.

The Reporting Requirements:

FinCEN has issued the final rule for the Reporting Rule for BOI reporting. The Reporting Rule requires certain corporations, limited liability companies, and other similar companies, and their agents (a “Reporting Company”), to file (i) a beneficial ownership information (BOI) report with FinCEN and (ii) information about the individual(s) who filed a document to create or register the entity (the “Entity’s Applicant”). The deadline for an entity required to file a BOI report will depend on the date that the entity was created or registered.

• An entity that was formed prior to January 1, 2024 will have until January 1, 2025 to file its initial BOI report without penalty and will not need to file information for the Entity’s Applicant.
• An entity required to comply with the CTA that is created or registered on or after January 1, 2024 shall have ninety (90) calendar days after its creation or registration to file its initial BOI report.
• An entity created or registered on or after January 1, 2025 will have thirty (30) days to file its BOI report. However, in any case, the information for the Entity’s Applicant will not need to be updated.

The failure for a person to report in compliance with the CTA, if required, will result in a civil penalty of up to $500 for each day the person is not in compliance, up to $10,000, with the possibility for imprisonment for up to two (2) years.

The Beneficial Ownership Information:

The reported information typically includes details about the beneficial owners, such as their names, addresses, dates of birth, and a unique identification number from an acceptable identification document with a supporting image (i.e., driver’s license or passport).

An individual will be considered a beneficial owner of an entity if that individual either:

• has the ability to make important decisions for, or has substantial control over, an entity required to comply with the CTA; or
• owns twenty-five (25) percent or more of an entity required to comply with the CTA. If the Entity’s Applicant is the same person as the beneficial owner, then that person may obtain a FinCEN identification number which can be provided to FinCEN as a form of identification in lieu of resubmitting their information as the Entity’s Applicant.

Privacy Considerations:

Effective February 20, 2024, the Access Rule, a rule issued by FinCEN to establish protections for the BOI that it receives, will authorize FinCEN to release information to the following:

• U.S. Federal agencies engaged in national security, intelligence, or law enforcement activity;
• U.S. State, local, and Tribal law enforcement agencies;
• foreign law enforcement agencies, judges, prosecutors, central authorities, and competent authorities (foreign requesters);
• financial institutions using BOI to facilitate compliance with customer due diligence (CDD) requirements under applicable law;
• Federal functional regulators and other appropriate regulatory agencies acting in a supervisory capacity assessing financial institutions for compliance with CDD requirements under applicable law; and
• Treasury officers and employees.

These groups will face specific scrutiny and confidentially requirements to receive the BOI, in accordance with the CTA and FinCEN regulations. These extra measures are for the protection and confidentiality of the BOI. Failure for the authorized BOI recipients to comply with the Access Rule will result in both civil and criminal penalties, including without limitation, imprisonment.

What’s Coming Next?

1. The implementation of the CTA is currently an ongoing and constantly updating new area of law. The following is expected to come down the CTA implementation pipeline:
   • FinCEN will decide on a third rulemaking to revise the customer due diligence (CDD) rule, in accordance with the CTA. There has been recent comment on the implications that the CTA will have on financial institutions with respect to:
   • accessing the FinCEN BOI database;
   • obtaining customer consent for their requests; and
   • addressing discrepancies between BOI found in the FinCEN database and BOI obtained directly from customers.
   • It is expected that FinCEN will address some or all of these concerns in its final rule.
2. FinCEN will publish for public comment its proposed forms that law enforcement agencies, excluding federal agencies, and financial institutions will use to request BOI under the CTA.
3. Further developments in compliance and guidance documents for the CTA will be made to assist authorized law enforcement agencies, financial institutions, and other entities authorized to use BOI.