by Mike DeBlasi | May 3, 2023 10:20 am
It is all about corporate transparency. Beginning January 1, 2024, the Federal Government, through the Financial Crimes Enforcement Network[1] (FinCEN) of the US Treasury, will start collecting information about the “beneficial owners” of the many companies formed or doing business in the United States.
FinCEN is tasked with implementing Section 6403 of the Corporate Transparency Act[2] (CTA) — enacted by Congress on January 1, 2021— to prevent criminals, foreign state-owned enterprises, organized crime, and others from laundering money and hiding assets in the United States. Operating since 1970, this broadens the bureau’s mission to safeguard the financial system from illicit use. The CTA was passed as part of the National Defense Authorization Act of 2021[3].
According to the FinCEN regulations [4]released in September of 2022, every domestic or foreign company registered to do business in the United States should prepare for compliance.
Companies required to report will have to provide the following information to FinCen: the business name, current address, state of formation, and EIN of each entity. Reporting entities must also provide the name, birth date, address, and government-issued photo ID (E.g., a driver’s license or passport) for every direct or indirect beneficial owner. Under the CTA, a “beneficial owner” is defined as an individual who, directly or indirectly, exercises substantial control over the entity or owns or controls not less than 25 percent of the entity’s ownership interests.
Are you a reporting company?
While the CTA primarily focuses on identifying foreign-owned shell companies, all companies should review the definition of “reporting company” and its exceptions.
Not all companies or legal entities must report under these new regulations. Aside from the basic exclusions for certain nonprofits, trusts, and other highly regulated businesses (i.e., banking), 23 types of entities are excluded from the requirements. Now is an excellent time to determine if you are a “reporting company.”
There are two types of reporting companies — domestic and foreign. The primary factor in determining whether your company must report is whether you had to file a document with your state’s secretary of state (or a similar office) to create your company or, for foreign companies, register it to do business in the United States.
Reporting companies created or registered before January 1, 2024, will have 12 months to report. All corporate entities created after January 1, 2024, will have 30 days to file their initial reports.
Security
Reporting your company’s beneficial ownership information to FinCEN will be accomplished electronically through a secure filing system available via FinCEN’s website. This system is currently being developed, as are the processes and procedures governing the security and confidentiality of the beneficial ownership information collected. According to FinCEN[5], the agency is building a secure, confidential IT system to store information. Consistent with Federal law, the system will be cloud-based. It will meet the highest Federal Information Security Modernization Act[6] (FISMA) level to ensure confidentiality and that the reported information is used only for authorized purposes.
Prepare now
Until the reporting portal is available, companies should focus on who will report and what will be reported. Depending on the age of your company, it may be challenging to gather the list of beneficial company owners — and their addresses — since inception. Because this task can take time, reporting companies should start assembling the information that will be needed by the FinCEN after January 1, 2024.
If you have questions about how this new reporting requirement will impact your business, don’t hesitate to contact Orr & Reno for assistance.
About the Author: Rebecca J. Liubakka
Source URL: https://orr-reno.com/are-you-ready-for-the-federal-corporate-transparency-act/
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