Tag: CTA. beneficial ownership information

New Diligence Opportunity for Financial Institutions

On Jan. 1, 2024, the Corporate Transparency Act (“CTA”) took effect. As a result, all business entities, unless expressly exempt by the CTA, must file Reports of Beneficial Ownership Information (“BOI”) with the Financial Crimes Enforcement Network (“FinCEN”), a unit of the U.S. Treasury. Under the CTA, “financial institutions,” i.e., banks and other entities that provide financings and are subject to the “Know Your Customer” and “Customer Due Diligence” regulations of FinCEN pursuant to the Bank Secrecy Act, the USA Patriot Act, and the Anti-Money Laundering Act of 2020, may access the BOI on reports filed with FinCEN.

To gain access to the BOI, the financial institution MUST:

  1. Obtain the written consent of the customer, i.e., the borrower, guarantor, or other loan party, in connection with the diligence process required before entering a business relationship with the customer, or as part of the continuing diligence required in an existing relationship. Accordingly, forms used by the financial institution to open or to continue an existing business relationship must include a clear and conspicuous provision in which the customer gives consent. This will probably require a complete review and revision of those forms;
  2. Determine that obtaining access to the BOI is reasonably necessary for the financial institution to meet its diligence obligations. That determination should be spelled out in the written request to FinCEN for access; and
  3. Acknowledge the scope of confidentiality obligations with respect to the BOI obtained, including the limited use permitted of the information, as well as safeguarding that accessed BOI from misuse.

Financial institutions should be prepared to request access to BOI as a matter of course. In any case where a customer engages in violative activity, and the BOI would have alerted the financial institution to possible risks, that institution could be exposed to sanctions by its principal prudential regulator and/or by other law enforcement agencies.

©2024 Norris McLaughlin P.A., All Rights Reserved
For more news on Financial Institutions Gaining Access to BOIs, visit the NLR Financial Institutions & Banking section.

Recent FinCEN FAQs Provide Additional Guidance on Compliance

The US Financial Crimes Enforcement Network (FinCEN) released several new FAQs this month to provide further clarity on the Corporate Transparency Act’s (CTA) provisions.
Notably, FinCEN provided guidance on who is considered “primary responsible” for directing a filing, as well as what is necessary to qualify under the subsidiary exemption, among other matters.

The CTA’s requirements went into effect on January 1, 2024. As we’ve previously detailed, reporting companies formed prior to that date will be required to file their initial reports with FinCEN no later than January 1, 2025. A reporting company created during 2024 is required to file its initial report within 90 days of its creation or registration, and one created on or after January 1, 2025, will have 30 days to file its initial report. A previously registered company will need to update its registration within 30 days of a change in its beneficial ownership or other information reported to FinCEN. For detailed overviews of the CTA, please visit our earlier posts located here, here, and here.

Company Applicants: Who is “Primarily Responsible” for Directing a Filing?
The CTA requires that reporting companies formed on or after January 1, 2024, disclose their “company applicant.” An individual is a “company applicant” if (1) they directly file the company’s formation or registration documents with a secretary of state or similar office or (2) if more than one person is involved in the filing, they are primary responsible for directing or controlling the filing. A maximum of two individuals can be reported as company applicants.

The FAQs clarify that the person who signs the formation document, such as an incorporator, is not necessarily a company applicant. Instead, the rule focuses on the person responsible for making decisions about the filing, including how the filing is managed, what contents to include, and when and where filing will occur.

FinCEN provides three scenarios to illustrate the rule. In two of the scenarios, an attorney or a paralegal instructed by that attorney completes a company creation document using information provided by a client and sends the document to a corporate service provider to be filed with a secretary of state. In this scenario, the attorney will one of the company applicants, and the employee at the corporate service provider who directly filed the document with the secretary of state will be the other company applicant. In the third scenario, the attorney’s client initiated the company creation directly with the corporate service provider — in this case, the client will be a company applicant (as will the employee at the corporate service provider who directly filed the document).

Subsidiary Exemption: Is Partial Control of a Subsidiary’s Ownership Interests By an Exempt Entity Sufficient to Qualify for the Subsidiary Exemption?
The short answer is — no.

The CTA lists 23 categories of entities that are exempt from the beneficial ownership information (BOI) reporting requirements. A subsidiary of certain categories of exempt entities will also be exempt if the subsidiary is controlled or wholly owned, whether directly or indirectly, by one or more of such exempt entities.

The FAQs clarify what happens when the exempt entity partially controls the subsidiary. Partial control is insufficient for an entity to fall within the subsidiary exemption — a subsidiary’s ownership interests must be fully, 100% owned or controlled by the exempt entity to qualify for this exemption. Thus, control of ownership interests means that one or more exempt entities entirely control all of the ownership interests in the reporting company, in the same way that an exempt entity must wholly own all of a subsidiary’s ownership interests for the exemption to apply.

Selected Additional Matters Covered by the New FAQs
Reporting Company Ownership Subject to Dispute: If ownership of a reporting company is the subject of active litigation, all individuals who own or control (or claim to own or control) at least 25% of the company’s interests are considered beneficial owners, and BOI must be submitted for each individual (in addition to BOI for all individuals who exercise substantial control over the company). If, after the legal dispute is solved, the reporting company has different beneficial owners from those initially reported, an updated BOI report must be filed within 30 calendar days after the litigation is resolved.
Third-Party Couriers or Delivery Service Employees: Third-party courier or delivery service employees who solely deliver documents to a secretary of state are not company applicants, as long as the third-party courier, the delivery service employee, and the delivery service that employs them play no other roles in the creation or registration of the reporting company.
Automated Incorporation Service: An automated incorporation service’s employees are not company applicants if the service solely provides software, online tools, or generally applicable written guidance for the creation of a reporting company and its employees are not directly involved in filing creation documents.
No Photo on Identification Document for Religious Reasons: If a beneficial owner’s or company applicant’s identification document does not include a photograph for religious reasons, the reporting company may submit an image of that identification document when submitting its report, provided that the document is otherwise an acceptable type of identification. If the individual in question obtains a FinCEN identifier, then the burden of providing the identification document to FinCEN would fall on the individual and not on the company (which would only need to report the FinCEN identifier).
No Permanent Residential Address: When a reporting company must report an individual’s residential address, but no such permanent address is available, the reporting company should report the residential address that is current at the time of filing the report. If the address later changes, the reporting company must submit an updated report within 30 days from such change. The use of a FinCEN identifier by the individual will eliminate the company’s need to submit an updated report, although the individual would be required to update his or her address with FinCEN directly.

© 2024 ArentFox Schiff LLP

by: Evgeny Magidenko of ArentFox Schiff LLP

For more news on Corporate Transparency Act Compliance, visit the NLR Corporate & Business Organizations section.

Beware of Corporate Transparency Act Scams and Fraud

The Corporate Transparency Act’s (CTA) Beneficial Ownership Information reporting requirements are set to take effect on January 1, and bad actors are already using the CTA’s requirements to solicit unauthorized access to Personally Identifiable Information. To that end, the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) recently issued a warning regarding such scams. FinCEN describes these efforts as follows:

“The fraudulent correspondence may be titled “Important Compliance Notice” and asks the recipient to click on a URL or to scan a QR code. Those e-mails or letters are fraudulent. FinCEN does not send unsolicited requests (emphasis added). Please do not respond to these fraudulent messages, or click on any links or scan any QR codes within them.”

© 2023 Varnum LLP
For more news on Corporate Transparency Act Scams and Fraud, visit the NLR Corporate & Business Organizations section.

Beneficial for Whom? Requirement to Provide Beneficial Ownership Information for Business Entities Begins January 1, 2024

On January 1, 2024, the Corporate Transparency Act, a US federal law, will begin requiring certain corporations and limited liability companies to disclose their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of the Treasury. The corporate ownership structures of many gaming companies, particularly those that utilize a private equity or Voteco model, may be subject to the reporting obligations.

Unless an exemption applies, entities subject to these obligations must report information about their beneficial owners, including their full legal names, dates of birth, addresses, unique identification numbers, and an image of one of the following non-expired documents: (i) state driver’s license; (ii) US passport; or (iii) identification document issued by a state, local government, or tribe. Gaming companies should consult with their legal counsel on their specific structures and the applicability of the reporting obligations to their corporate ownership models.

The willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information, may result in civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. Senior officers of an entity that fails to file a required beneficial ownership information report may be held accountable for that failure.

The obligation to report this information is generally required for entities with at least one beneficial owner who owns 25% or more of the entity or exercises substantial control over it. An individual exercises substantial control over a reporting company if that individual meets any of four general criteria: (1) the individual is a senior officer; (2) the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company; (3) the individual is an important decision maker; or (4) the individual has any other form of substantial control over the reporting company.

Reporting companies created or registered to do business before January 1, 2024, will have until January 1, 2025, to file their initial reports. Under FinCEN’s regulations, reporting companies created or registered on or after January 1, 2024, will have 90 days after their company’s creation or registration to file their initial reports, and those created or registered on or after January 1, 2025, will have 30 days after their company’s creation or registration to file their initial reports.

© 2023 Jones Walker LLP
For more news on the Corporate Transparency Act and Beneficial Ownership Information, visit the NLR Criminal Law / Business Crimes section.