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The Corporate Transparency Act One Year On – Key Insights and FAQs
The Corporate Transparency Act (CTA), implemented on the 1st of January 2024, marks the most significant revision to the United States’ (U.S.) anti-money laundering and combating the financing of terrorism framework in over two decades. This federal initiative aims to combat corruption, money laundering, illicit activities, and sanctions evasion, affecting most U.S. businesses and foreign entities with U.S. business interests.
The CTA’s first reporting deadline was set to be the 1st of January 2025, however on the 3rd of December 2024, a Texas federal judge issued a nationwide injunction temporarily halting implementation of the CTA. A flurry of developments saw the deadline reinstated on the 23rd of December 2024, before being reversed three days later with reporting requirements now halted once again.
The Department of the Treasury Financial Crimes Enforcement Network (FinCEN) has since made an application to the U.S Supreme Court, requesting a stay on the nationwide injunction or to narrow the reach of the injunction.
Since its inception, Mercator’s U.S. team has collaborated closely with the Department of the Treasury Financial Crimes Enforcement Network (FinCEN) to understand the law’s intricacies and navigate Beneficial Ownership Information reporting for clients.
Here are answers to frequently asked questions one year on and in light of the ongoing court proceedings:
What information does the CTA require?
Unless exempt, domestic and foreign entities subject to the law (called “Reporting Companies”) must file reports identifying Beneficial Owners, officers, and control persons to FinCEN.
A Reporting Company must report its legal name, any alternative names, jurisdiction of formation/registration, business address, and taxpayer identification number (TIN) or employer identification number (EIN).
Beneficial Owners must disclose their full legal name, date of birth, residential address, an identifying number from an acceptable form of identification (such as a driver’s license or passport), and a copy of said document.
Is Beneficial Ownership Information report filing secure and how is data privacy protected?
Beneficial Ownership Information Reports (BOIR) are filed electronically through a secure, non-public, cloud-based system managed by FinCen. The system is only accessible to federal law enforcement with proper authorization, for specifically designated purposes. FinCEN utilizes robust security protocols including encryption to protect the sensitive data stored in their system.
What is a FinCEN ID? Is it required? What are the advantages?
A FinCEN ID is a unique 12-digit number issued to individuals by FinCEN. Reporting companies can also apply for a FinCEN ID, but its use is more limited than individuals.
While obtaining a FinCEN ID is not mandatory, it is highly recommended for individuals and companies involved in frequent reporting of beneficial ownership information.
The key benefits of obtaining a FinCEN ID are:
- Streamlined reporting: Companies can report a beneficial owner’s FinCEN ID instead of their full personal information on Beneficial Ownership Information Reports (BOIR).
- Privacy protection: Individuals only need to provide their personal information once to FinCEN to obtain the ID, eliminating the need to repeatedly disclose their information to different reporting entities, safeguarding their sensitive details.
- Data security: By providing a unique identifier, the risk of errors in reporting personal information is minimized.
- Efficiency for complex structures: For companies with multiple subsidiaries or related entities, using a single FinCEN ID for reporting simplifies the process and reduces redundancy.
Who are Beneficial Owners under the CTA?
A Beneficial Owner under the CTA is an individual who:
- owns or controls at least 25% of a reporting company’s ownership interests, or
- exercises substantial control over it.
An individual can exercise substantial control over the reporting company by:
- Being a senior officer, such as the president, CEO, COO, CFO, or general counsel
- Having the authority to appoint or remove a senior officer or a majority of the board
- Being an important decision-maker
- Having any other form of substantial control
What if the reporting company is owned by an entity, not an individual?
If a reporting company is owned by another entity, rather than an individual, the beneficial ownership information should reflect the individuals considered beneficial owners of the parent entity. This requires “looking through and up the corporate ownership structure” to identify ultimate individuals with control.
How do you determine if an entity is exempt from reporting?
Exempt entities are required to file a BOI report, indicating that they are exempt, but do not need to disclose any UBO information.
FinCEN has specifically exempted 23 types of entities from reporting, including: U.S. Securities and Exchange Commission (SEC) registered issuers, banks, and other types of regulated financial institutions; tax-exempt entities; insurance companies; accounting firms; certain inactive entities; investment companies and investment advisers; pooled investment vehicles; U.S. governmental authorities; and public utilities and large operating companies.
Most direct and indirect wholly-owned subsidiaries of exempt entities are also exempt, with some exceptions ((i.e., subsidiaries of Pooled Investment Vehicles, money services businesses/money transmitters, inactive entities, and entities assisting tax exempt entities). Exemption under the CTA can be complex and should be reviewed by legal counsel.
Is Beneficial Ownership Information reporting an annual obligation?
Beneficial ownership information reporting is not an annual requirement. A report only needs to be submitted once, unless the business needs to update or correct information. However, measures should be taken to monitor even minor changes to beneficial ownership information, perhaps yearly or semi-yearly.
What was the Federal Court’s decision in December 2024?
On the 3rd of December 2024 the U.S. District Court issued a preliminary decision in case Texas Top Cop Shop, Inc., et al. v. Garland, et al, which held that BOI reporting requirements to FinCEN are likely to be unconstitutional and therefore might harm the reporting companies.
Consequently, the Court issued an injunction which prohibits enforcement of filing requirements and any penalties for missing BOI reporting deadlines shall not be imposed.
What are the latest legal developments?
- 23rd December – Fifth Circuit motions panel grants the Government’s stay; FinCEN issues a statement requiring filing of BOIRs again with extended deadlines.
- 26th December – Fifth Circuit merits panel vacates its own stay, thereby suspending enforcement of the CTA.
- 27th December – FinCEN issues a statement again making filing of BOIRs voluntary.
- 31st December – FinCEN applies to the Supreme Court for a stay of the December 3, 2024 injunction
What actions need to be taken by companies now in light of the Supreme Court case?
Until the Supreme Court issues a decision, the original nationwide preliminary injunction is still in effect. Thus, as of the 26th of December 2024, reporting entities are not currently required to file BOI reports with FinCEN and are not subject to liability if the fail to do so while the order remains in force.
We recommend continuing compliance efforts and voluntarily filing reports. A proactive approach ensures readiness, demonstrates due diligence, and protects against potential penalties, regardless of the final decision’s timing or outcome.
LeAnn Austin
Legal Officer, Mercator by Citco, Citco (Delaware) Inc.
