The U.S. Congress enacted the Corporate Transparency Act (the “CTA”) as part of the Anti-Money Laundering Act of 2020, which is part of the National Defense Authorization Act for Fiscal Year 2021. The CTA became effective on January 1, 2024. The CTA was created to assist the federal government in its efforts against money laundering, terrorism, corruption, fraud, and other illegal activities.
The CTA requires certain companies in the U.S., including Puerto Rico, to report information about their beneficial owners. The U.S. Department of the Treasury enforces the CTA through the Financial Crimes Enforcement Network (“FinCEN”). On September 30, 2022, FinCEN issued the Final Reporting Rule to implement the CTA’s Beneficial Ownership Information Report (“BOIR”) provisions. The term “State” in the Final Rule includes a state of the United States and any other commonwealth, island, or possession of the United States, including Puerto Rico.
The CTA applies to:
A reporting company, domestic or foreign, must file a BOIR with FinCEN. The two types of Reporting Companies are:
- Domestic reporting company – refers to corporations, limited liability companies, and any other entities created by filing a document with a secretary of state or any similar office created under applicable state law.
- Foreign reporting companies – includes corporations and limited liability companies or other entities created under the laws of a foreign country that were registered to do business in any state by filing a document with a secretary of state or any similar office created under applicable state law.
The FinCEN Reporting Rule excludes 23 types of entities from being considered a Reporting company, including primary entities already subject to FinCEN regulation, publicly traded companies, and certain nonprofits, among others.
Important deadlines:
Companies organized or authorized to do business on or before December 31, 2023, have until January 1, 2025, to file their initial BOIR. New Reporting Companies created or registered to conduct business between January 1, 2024, and December 31, 2024, will have 90 days from the date of receiving actual or public notice that its creation or registration is effective.
A Reporting Company Formed or Registered on or after January 1, 2025, will have 30 days to file its initial BOIR from the date of receiving actual or public notice that its creation or registration is effective.
Reporting obligations:
A Reporting Company must submit information about the company, its Beneficial Owners, and Company Applicants, as applicable.
A Beneficial Owner is any individual (natural person) who, directly or indirectly, either exercises substantial control over the reporting company or owns or controls at least 25% of the ownership interest of the reporting company. The Final Rule provides guidelines for identifying Beneficial Owners.
The reporting obligation of the Company Applicants only applies to reporting companies created or registered on or after January 1, 2024. Just two individuals qualify as company applicants: (1) the individual who directly files the document that creates or registers the company, and (2) if more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing. No report of Company Applicants is required for companies created or registered on or before December 31, 2023.
Companies’ obligations after filing their initial BOIR:
For any change (update) in the information reported regarding the Reporting Company or its Beneficial Owners, the company must file an updated report within 30 calendar days after the date on which the change occurs. If a report has an error when filed, a corrected report must be filed within 30 calendar days after the company becomes aware of or has reason to know of the error.
Penalties for non-compliance with the reporting requirements:
Failure to comply with the CTA’s requirements, including failure to report, complete, or update a BOIR to FinCEN or the willful provision of or attempt to provide false or fraudulent BOIR, may result in civil or criminal penalties. Violations may entail a civil penalty of up to $500.00 per day for each day the violation continues up to $10,000.00 or imprisonment for up to two (2) years, or both.
Access to the information contained in the BOIR:
The information contained in the BOIR is confidential and cannot be disclosed by FinCEN except as authorized by the CTA or the CTA Final Rule. FinCEN may disclose BOIR information to a limited group of requestors, such as (1) federal agencies engaged in national security, intelligence, and law enforcement, (2) state law enforcement agencies with a court order, (3) the Treasury Department, (4) government regulators of financial institutions, and (5) certain foreign authorities requesting information through a U.S. agency.
JGL Attorneys at Law, LLC is available to assist with BOIR compliance and provide any additional advice necessary for timely compliance with the CTA.
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©2024 JGL Attorneys at Law, LLC. This material is provided for informational purposes only and it is not intended to constitute legal advice, nor does it create a client-lawyer relationship. Please consult with counsel before taking any actions based on the information contained within this material.