Keeping Your Company Compliant

BY JULIE DALLMANN

THE CORPORATE TRANSPARENCY ACT (CTA) went into effect on January 1st of this year, introducing significant changes to the business community. With its aim to combat financial crime, this controversial law creates fresh reporting obligations for millions of companies operating in the United States.

The new legislation requires many business entities to file a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). The BOI Report must disclose certain information about the company, its company applicants, and its beneficial owners. The deadline to file a company’s BOI Report varies based on the day that the business was first created or registered to do business in the United States. Companies created or registered before January 1, 2024 have until January 1, 2025 to file their initial BOI report. Companies created or registered on or after January 1, 2024 and before January 1, 2025 must file their initial BOI report within 90 calendar days after receiving actual or public notice of its creation or registration.

Although we are now several months into the Act, many businesses are still struggling to understand and comply with its requirements. A survey recently conducted by CSC showed that a significant proportion of more than 1,000 legal and compliance professionals are not yet comfortable with the CTA’s requirements. Nearly half (45%) of respondents employed by a corporation and almost a third (29%) of respondents employed in a law firm admitted to being very unclear about the CTA’s requirements. Just 4% of corporate respondents felt very comfortable with the requirements, with the figure rising to 15% among the law firm group.

When questioned about the CTA topics they felt were the most challenging, corporate respondents reported that preparing and managing Beneficial Ownership Information (BOI) filings was the most burdensome, while law firm respondents reported that gathering information required for beneficial owners and company applicants was more challenging. Keeping up with new regulations can be difficult, but the risks

associated with noncompliance are significant. Wilful violations of the CTA can carry both civil and criminal penalties. To help companies comply with their obligations under the CTA, FinCEN maintains a list of resources on its website. In particular, FinCEN has published a Small Entity Compliance Guide and a list of FAQs providing clarification on certain aspects of the law. Three terms are especially important:

Reporting Company: Entities must file a BOI Report if they meet the definition of a “reporting company” and do not qualify for an exemption. A reporting company is a corporation, limited liability company or similar entity that is formed or, in the case of foreign entities, registered to do business in the U.S by filing a document with a secretary of state or any similar office under state or tribal law. However, there are 23 categories of companies that are exempt from the CTA reporting requirements. If an exemption applies, the entity is not a reporting company and does not need to file a BOI report with FinCEN.

Keeping up with new regulations can be difficult, but the risks associated with noncompliance are significant.

Company Applicant: A company applicant is the individual who files the document that creates or registers the company, and if different, the individual primarily responsible for directing or controlling the filing.

Reporting companies formed or registered before January 1, 2024 need not identify or report information about their company applicants. However, reporting companies formed or registered on or after January 1, 2024 will need to report at least one and no more than two company applicants.

Beneficial Owner: A beneficial owner is any individuals who, directly or indirectly, exercises substantial control over a reporting company or owns or controls at least 25 percent of the ownership interests of a reporting company. Every reporting company must report at least one beneficial owner, but there is no maximum number of beneficial owners that a reporting company may have.

Keeping abreast of regulatory updates and maintaining records of compliance filings can be challenging. Outsourcing to a trusted partner with the expertise to offer end-to-end CTA solutions is an efficient way for companies to alleviate some of the administrative burden and mitigate the risks of noncompliance.

Julie Dallmann is the product management director of corporate & legal solutions at CSC.