NEW U.S. DEPARTMENT OF TREASURY LAW REQUIRES
CORPORATIONS TO REPORT & UPDATE INFORMATION
WITH FinCEN
As of January 1, 2024, the Corporate Transparency Act (CTA) went into effect, requiring all business entities with U.S. or foreign owners to disclose their business activities, as well as extensive information about their responsible individuals: owners, partners, shareholders, as well as any person who makes corporate decisions involving securities and capital management.
The information requested by the CTA in their Beneficial Ownership Information Report (BOIR) must be submitted to the Financial Crimes Enforcement Network (FinCEN) which is a division of the U.S. Department of the Treasury responsible for implementing and enforcing the CTA.
As of January 1, 2024, this new regulation stipulates that newly incorporated businesses must file their corporate information report with FinCEN within 90 days of their filing date with the Secretary of State. Businesses incorporated prior to the aforementioned date will have at the latest until January 1st, 2025, to submit their report. However, for the latter it is important to submit the report as soon as possible to avoid any potential delays with banking institutions and/or tax filings, just to name a few cases.
EXEMPTIONS
There are some business entities that are exempt from having to submit a report to FinCEN, such as those that employ more than 20 full-time U.S. employees and have more than $5 million in gross receipts on their annual tax returns. It should be noted that this information is not definitive or complete and only offers a small sample of some provisions of the newly enacted CTA. Each company (domestic and/or foreign) is unique; therefore, it is necessary to analyze the business structure of each filing entity to determine the required information that must be submitted..
UPDATED INFORMATION
A reporting company is required to report any updates or changes made to the information or documentation of its beneficial owner(s) previously submitted to FinCEN within 30 days from when the relevant change occurs. This requirement to update information submitted to FinCEN includes any changes regarding its beneficial owners, name changes, address changes, changes to personal identification numbers, changes or renewals of identifying documents submitted, or any other information presented in the initial report related to the reporting company and its beneficial owners. The only exception to this 30-day period is with respect to changes in beneficial ownership after death, which must be reported within 30 days after the date that the decedent’s estate is ultimately settled and not within 30 days after death. If a legal guardian or parent was previously named as the beneficial owner of a minor child’s interest, the designation must be updated within 30 days after the child turns 18 years old.
RESPONSIBLE PARTIES
CTA requires non-exempt companies to disclose detailed information about their beneficial owners (i.e., the individual or individuals who ultimately own and control the business entity). The beneficial owner(s) of a reporting company under the CTA is “any person who, directly or indirectly, exercises substantial control over such reporting company or owns or controls at least 25 percent of the ownership interests of said reporting company.”
According to FinCEN, each reporting company must identify at least one beneficial owner based on the “substantial control” test, where substantial control encompasses a broad range of influence over an entity.
A “senior officer” – defined as a president, chief executive officer, chief financial officer, chief operating officer or general counsel – is considered to have substantial control for purposes of the Corporate Transparency Act. Any individual with authority to appoint or remove senior officers or a majority of directors or who otherwise “has substantial influence over major decisions made by the reporting company” is considered to have substantial control.
DEFINITION OF OWNERSHIP
The Corporate Transparency Act defines “ownership interests” as any equity interest, stock, securities, capital or profit interests, convertible debt instruments, and any applicable put or call rights, including “any other instrument, contract, arrangement, understanding, relationship or mechanism used to establish ownership.” In general, any present or future right to the equity or earnings of an entity will qualify as an ownership interest.
VIOLATIONS
Any person who intentionally provides incorrect information about a company or its beneficial owners (Owners, Executives, Rank and File Employees) or who intentionally fails to report or update beneficial ownership information to FinCEN is subject to civil and criminal penalties prescribed under the Corporate Transparency Act. Penalties include civil fines of up to $500 per day, as well as a criminal fine of up to $10,000 and/or imprisonment up to 2 years. The definition of “person” for enforcement purposes includes any senior officer of a reporting company; therefore, the president, general counsel and management team of a reporting company may be personally liable for the reporting company’s failure to file or update beneficial ownership information with FinCEN.
PURPOSE OF THIS NEW LAW
The Corporate Transparency Act was passed by the U.S. Congress in order to provide law enforcement with additional tools to combat so-called “shell companies” involved in illicit activities such as: money laundering, narco-trafficking, terrorist activities, etc.
It should also be considered that in the last few decades corporations and LLCs have been used for personal activities, property registrations and/or banking activities, deviating far and away from the original purpose of generating wealth from commercial operations. Therefore, the Corporate Transparency Law seeks to visualize the true interests of each company and the functions it must perform based on its nature.
WHAT TO DO NOW?
While the new Corporate Transparency Act generates new challenges, time, and expenses, it is important to keep in mind that in many countries corporate laws are more complex than those in the United States, thus it comes as no surprise that these rules had to be imposed sooner rather than later.
Regrettably, there are only two courses of action availabe:
1) Close the company and bank account. (NOT ADVISABLE)
2) Comply with the new law. It is not difficult, just uncomfortable because individuals do not wish to give out too much personal information, but if this had been a requirement from day one, no one would be taken aback today.
Contact our office to get more details and receive relevant documentation that will help you easily organize the questionnaires required in your CTA Report.
Reach out to our seasoned team of professionals today and we will help guide you through the entire process.
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