At the beginning of this year, Congress passed a landmark piece of legislation, the Corporate Transparency Act (the “CTA”), which will require all new and existing companies organized under the laws of any of the 50 U.S. states to disclose to the Financial Crimes Enforcement Network (FinCEN) the following information related to their UBOs:
- Full legal name;
- Date of birth;
- Residential or business address;
- A unique identifying number from a U.S. or foreign passport or identification document issued by a state. Foreign UBOs will have to also provide a certified copy of their passport.
U.S. entities will have to update their UBO disclosure yearly. There are exceptions to the UBOs disclosure requirements for those entities deemed of low risk from a financial crimes perspective. These include entities with over 20 employees that reported over $5 million in revenue on their latest tax return, along with certain regulated entities that are already subject to disclosure requirements.
FinCEN will not make UBOs information public and, as a matter of fact, access to such information is strictly limited to law enforcement and bank compliance purposes. There are criminal penalties attached to the unauthorized disclosure of UBOs information.
Compliance with the Corporate Transparency Act will be required when the implementing regulations are adopted. Congress has established a deadline of one year for the Department of Treasury to issue such regulations. In April the FinCEN issued an advanced notice of proposed rulemaking and opened the door to public commenting for initial input on procedures and standards for reporting companies to submit information as to their beneficial owner as required by the CTA. In total, 241 comments were made by the commenting period expiration in May with comments heavily focused on what entities should be exempted and what entities fit into the definition of a “reporting company”.
In the meantime, as we continue to await developments, business owners should begin reviewing the CTA to determine whether their entity will qualify as a “reporting company” subject to its requirements. If so, then business owners will want to (i) begin gathering beneficial ownership information, (ii) review governance documents to confirm there are no confidentiality clauses or other obligations that will conflict with the requirements under CTA, (iii) consider revising governance documents to require owners to disclose the required information, and (iv) implement a process for meeting the CTA’s requirements.
Fabio Giallanza is a partner with Salcedo Attorneys at Law P.A. He focuses his practice in corporate and commercial transactions. He holds an LLM in Taxation from the University of Miami.