Fanny Evans, Senior Associate, Morgan & Morgan
What is the CTA?
The CTA was enacted on January 1st, 2021 as part of the National Defense Authorization Act to prevent the use of companies to evade anti-money laundering rules or to hide other illegal activities. Under the CTA companies will be required to report information regarding its beneficial owners with a beneficial ownership registry maintained by the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
When is the effective date for the CTA and regulations?
The CTA will become effective on the date that its regulations are prescribed and issued by the Secretary of the United States Treasury, which shall be promulgated within one year after the enactment of the Act- that date being January 2022.
Who must report?
Entities required to report are called “reporting companies” under the CTA. A reporting company is broadly defined under the CTA as a corporation, limited liability company or other similar entity that is created under state law or formed under laws of a foreign jurisdiction and registered to do business in the United States. It is unclear whether a similar entity includes partnerships or trusts, and it is expected that the regulations will provide some clarity in this regard.
Who is exempt from reporting?
The CTA contains the exclusion of categories of entities from the definition of reporting company. An entity that falls into one of these categories will not be required to submit beneficial ownership information to FinCEN. To review the list of the exclusions CLICK HERE.
Who is considered a beneficial owner?
An individual who exercises substantial control over the company or who owns or control at least 25% of the company, and applicants, defined as anyone who files an application to form the company or register a foreign company in the United States. The CTA does not explain what constitutes “substantial control” and it is expected that the regulations will provide some clarity in this regard.
What information on the beneficial owner will be reported?
1. Full legal name,
2. Date of birth,
3. Current residential or business street address, and
4. A unique identification number, which can be from a non-expired US passport, non-expired US or state government ID, non-expired driver’s license, or a valid foreign passport.
Every reporting corporation must file a report within one year of the beneficial ownership information changing. Changes that trigger this report include (i) a change in substantial control of the reporting company, (ii) a change in contact details for a beneficial owner or applicant, and (iii) beneficial ownership exceeding or dropping below 25%.
Who has access to the FinCEN database?
The information collected in the FinCEN database will not be publicly available; but will be available to federal agencies engaged in national security, intelligence, or law enforcement activity, state or local law enforcement if authorized by a court.
Financial institutions may also receive this information with the consent of the reporting company.
What are the deadlines to report?
a) Any reporting company that is existing at the time regulations are effective must file the report within two years of the effective date of the regulations.
b) Any reporting company created after the effective date of the regulations must file the report while forming the corporation.
What are the sanctions?
Any person who willfully provides, or attempts to provide, false or fraudulent beneficial ownership information, including a false or fraudulent identifying photograph or document, or fails to file complete or file accurate reports or fails to provide updated reports will face penalties of up to $10,000 (accruing at $500 per day that the report is outstanding) and/or imprisonment for up to two years.
Disclosing or using beneficial ownership information without authorization is also subject to a $500 per day penalty and a penalty of up to $250,000 and/or 5 years imprisonment.
For more information, we suggest you contact a suitable attorney in the United States.
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