New Guidance Issued for Corporate Transparency Act Compliance Ahead of Year-End Deadline
July 31, 2024
The Case
The Corporate Transparency Act (CTA), a significant new regulation under US anti-money laundering laws, is approaching a crucial compliance deadline.
As of January 1, 2024, the CTA requires US companies to file beneficial ownership information (BOI) reports with the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). These reports must identify individuals who exercise “substantial control” over an entity or own at least 25% of the entity's ownership interests. While millions of newly formed companies have already submitted their beneficial ownership information reports (BOIRs), tens of millions more companies created or registered before January 1, 2024, must file by January 1, 2025.
In recent months, FinCEN has ramped up efforts to clarify the CTA’s requirements. This includes releasing more than 40 Frequently Asked Questions (FAQs), issuing a small business compliance guide, and hosting webinars to address ambiguities in the rules.
Despite these efforts, confusion remains over some of the regulatory guidance, particularly regarding exemptions, dissolved entities, and the definition of "substantial control."
Regulatory Implications
FinCEN’s guidance has provided some clarity but also highlighted areas of the CTA that require careful navigation. For example, one of the FAQs explained that the subsidiary exemption applies only to entities "wholly controlled" by an exempt entity, not just those operationally controlled by one. This could affect many corporate structures.
FinCEN also clarified that entities formed and dissolved within 2024 must still file a BOIR. This has raised questions about how to report beneficial ownership for entities that no longer exist or were dissolved soon after being created.
According to FinCEN officials, the BOIR filing process itself is straightforward and can generally be completed in about 20 minutes. However, the complexities lie in gathering the necessary information, particularly for companies with complex ownership structures or those involving joint ventures and partnerships. Each beneficial owner must obtain a FinCEN ID to maintain confidentiality, which can be burdensome in situations with multiple stakeholders or layered ownership.
Practical Guidance for Firms
With the January 1, 2025, deadline approaching, companies are advised to take immediate steps to comply with the CTA’s requirements:
Review Corporate Structures: Companies should begin by inventorying all entities within their corporate structure to determine which are subject to the CTA and which may qualify for an exemption.
Identify and Collect Beneficial Ownership Information: For nonexempt entities, it is vital to identify all individuals who qualify as beneficial owners under the CTA definitions, which include those with significant ownership or substantial control.
Prepare for Potential Ambiguities: Given the unresolved questions and evolving guidance, companies should consult with legal counsel to fully understand their obligations.
InnReg has been a trusted compliance consulting and outsourcing provider since 2013, guiding firms through complex regulatory landscapes. Our expertise in compliance frameworks can help your company understand its CTA obligations, identify risks, and implement the necessary controls to comply effectively.
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