Q1. What is the Corporate Transparency Act?
A1. At the end of 2020, the US Congress enacted the Corporate Transparency Act, mandating that the Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury establish and operate a federal beneficial owner registry.
 
Q2. How does the Corporate Transparency Act function?
A2. The Corporate Transparency Act compels entities qualifying as “Reporting Companies” to disclose all US and non-US Person beneficial owners of the Reporting Company.
 
Q3. What counts as a Reporting Company pursuant to the Corporate Transparency Act?
A3. The Reporting Companies includes all US corporations, US limited liability companies (LLCs) and other similar enterprises that are created by the filing of a document with a secretary of state or similar state office.

For more on Reporting Companies please refer to:

• The Corporate Transparency Act - Who must file

Q4. Are any US entities not Reporting Companies under the Corporate Transparency Act?
A4. Yes, entities that do not need to register with or submit a form to a secretary of state or similar state office in order to be set up do not qualify as Reporting Companies. Examples vary by state, as each state sets its own requirements, but generally the omitted entities include simple partnerships and trusts.​

For more on trusts under the Corporate Transparency Act, please refer to:

• The Corporate Transparency Act - The impact on trusts

Q5. So only a US entity can qualify as a Reporting Company per the Corporate Transparency Act?
A5. No, but a non-US entity will not qualify unless it actively registered to do business in a US State.
 
Q6. Who counts as a “Beneficial Owner” for purposes of the Corporate Transparency Act?
A6. The definition of Beneficial Owners refers to “any individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise—(i) exercises substantial control over the entity; or (ii) owns or controls not less than 25% of the ownership interests of the entity.”
 
Q7. What counts as substantial control under the Corporate Transparency Act?
A7. There is no definition of substantial control provided, but three of the indicators of substantial control specified are (1) service as a senior officer; (2) authority over the appointment or removal of any senior officer or dominant majority of the board of directors; and (3) direction, determination, or decision of, or substantial influence over, important matters of the Reporting Company.
 
Q8. Does indirect ownership by a Beneficial Owner refer to ownership stakes held through other entities?
A8. Yes, and there are no blockers.
 
Q9. Will the Reporting Company need to apply ownership aggregation rules in order to calculate ownership percentages?
A9. Yes, almost surely, but hopefully milder versions than the ones set out in the US tax code.

For more on Beneficial Owners please refer to:

• The Corporate Transparency Act - What information must you provide

Q10. Are the Beneficial Owners the only reportable parties under the Corporate Transparency Act?
A10. No, a Reporting Company must also disclose its Company Applicant, who is the person who signed or authorized the Reporting Company’s registration or application for establishment with the relevant secretary of state or similar state office.
 
Q11. What information needs to be disclosed under the Corporate Transparency Act?
A11. The Reporting Company must disclose the following “Beneficial Owner Information” (or “BOI”) for each of its natural persons qualifying as reportable–

• Full legal name;
• Date of birth;
• Current residential or business street address; and
• A unique identifying number from one of a set of approved documents and a copy of that document.

The Reporting Company must also disclose information on itself, as follows–

• Full legal name;
• A trade name or “doing business as” name, if any;
• Current business street address;
• The jurisdiction of formation; and
• The TIN or EIN issued by the IRS.

 
Q12. Is the information reported under the Corporate Transparency Act confidential?
A12. The registry is non-public, but the information is not completely off-limits. The registry information will be made available to other federal agencies for purposes of law enforcement and, in limited circumstances, to other governments pursuant to a valid request
 
Q13. How many times must a Reporting Company disclose its Beneficial Owner?
A13. Just one time is mandatory, but the Reporting Company must update the disclosure within one year of a change in circumstance to the beneficial ownership information originally submitted.
                                                                                         
Q14. By when must a Reporting Company disclose its Beneficial Owners and Company Applicant?
A14. The Corporate Transparency Act’s mandatory disclosures must be made at the time of formation for Reporting Companies established on or after the effective date of the forthcoming final regulations. Reporting Companies already in existence at that time must submit the disclosure within two years from the effective date of the final regulations.​

For more on the reporting mechanics and confidentiality safeguards under the Corporate Transparency Act, please refer to:

• The Corporate Transparency Act - What information must you provide

Q15. Can any of this change before the Corporate Transparency Act comes into force?
A15. Yes, but it is most unlikely. On 7 December 2021, FinCEN released the Notice of Proposed Rulemaking (NPRM) for FinCEN Rule 6403, setting forth the pending regulations for the Corporate Transparency Act after having digested the comments submitted from interested parties. The final regulations are expected in a few months and are unlikely to contain material revisions.
 
If you wish to learn more about the Corporate Transparency Act, please select one of the following topics–

• The Corporate Transparency Act – Who must file
• The Corporate Transparency Act – When and how must you file
• The Corporate Transparency Act – What information you must provide
• The Corporate Transparency Act – The impact on trusts​

As dissected in an earlier blog - The Corporate Transparency Act – Who must file, the term “Reporting Company” under the Corporate Transparency Act is defined to include: (1) a US corporation; (2) a US limited liability company (LLC) or (3) any other US entity that is created by the filing of a document with state authorities (plus any non-US entity that registers to do business in a US state). The third prong is subject to interpretation, but envisaged to include limited liability partnerships, limited liability limited partnerships, business trusts (a/k/a statutory trusts or Massachusetts trusts), and most limited partnerships. Critically for trustees and other fiduciaries, the definition seems to exclude most trusts because few such trusts must file a document with a secretary of state or similar office of a jurisdiction within the United States for their establishment.
 
On this basis, trustees will not need to disclose Beneficial Owner Information (or “BOI”) of any US trusts they administered unless the trust owns underlying companies that qualify as Reporting Companies, for example US LLCs. In that admittedly common circumstance, the trustee must review the Beneficial Owners of any Reporting Company it administers and disclose their Beneficial Owner Information. There is also a requirement to disclose the “Company Applicant”, generally referring to the person who signed the document registering the Reporting Company. The Corporate Transparency Act roughly aligns the definition of a Beneficial Owner for a Reporting Company with the one set out in the Financial Action Task Force’s 2012 recommendations (known as the “FATF Recommendations”). Accordingly, a Beneficial Owner is any natural person–

• Owning–directly or indirectly–25% or more of the ownership interests (broadly, equity interests) in a relevant entity; or
• Exercising “substantial control” over the entity, including via any contracts, arrangements, understandings, relationships, or otherwise (as reviewed in this previous blog - The Corporate Transparency Act – What information must you provide)

 
Crucially for trustees, any qualifying Beneficial Owner interests held through a trust are attributable as indirect holdings of the trust to one or more parties to the trust. Furthermore, throughout the NPRM, FinCEN appears inclined towards a maximalist approach that treats any Persons connected with the trust with the authority to demands distributions for themselves–as a mandatory beneficiary or as the sole discretionary beneficiary–or to mandate them for others–such as settlors, trustees or other parties vested with powers of appointment–as potential BOs (Prop. Reg. 31 CFR 1010.380(d)(3)(ii)(C)). But the scope of the term indirect beneficial ownership as applied to interests held through trusts is in not-yet fully settled.
 
As set out in the preamble to the NPRM, FinCEN is calling for comments in advance of the final regulations as to which parties to a trust will be indirectly attributed the holdings of the trust. The two familiar methods for assigning indirect ownership of trust assets are the IRS one and the FATF one. The IRS method ascribes tax ownership to settlors of grantor trusts and beneficiaries of non-grantor trust under a facts and circumstances test that is rife with subjectivity. FinCEN may prefer the blunter–but more easily administered–FATF method. Under FATF definitions (imported into the FATCA IGAs and CRS), certain parties are classified as Beneficial Owners (i.e. “Controlling Persons”) of the trust based on their title. As FinCEN is seeking a binary answer–reportable or not–and does not calculate a tax on a portion of the trust’s income, the FATF method is probably the more attractive one.
 
As such, it seems likely that trust companies may need to conduct a non-trivial amount of reporting on their clients, as well as on their own trustees and other personnel. Therefore, every US and non-US trust company administering US holdings for its clients, should prepare for such an outcome and assess the compliance resources necessary to satisfy the reporting for the LLCs and other Reporting Companies it administers.
 
That is not the end though. If a non-US trustee administers a structure that holds US assets (even where no component entity of that structures is itself US), clients may be reportable by Reporting Companies not administered by the trustee. Most prominently, such reporting will involve US private equity and real estate investments, which often involve US LLCs or LLPs. These holding structures often divide and allocate income streams for US income tax profiles. Due to these apportionments, a fund investor with a non-major share in the overall fund may in fact own controlling portions of certain US entities embedded within the structure. As a client service, trustees may opt to analyze these scenarios in advance and ready its clients for the consequences (for example, reportable parties may apply for a “FinCEN identifier” to maintain anonymity towards third-party Reporting Companies).
 
If you wish to learn more about the Corporate Transparency Act, please select one of the following topics–

• The Corporate Transparency Act Starter FAQs – The Genesis of a National Beneficial Owner Registry
• The Corporate Transparency Act – Who must file
• The Corporate Transparency Act – When and how must you file
• The Corporate Transparency Act – What information must you provide

At the end of 2020, the US Congress enacted the Corporate Transparency Act, mandating that the Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury establish and operate a US Federal Beneficial Owner Registry. On 7 December 2021, FinCEN released the Notice of Proposed Rulemaking (NPRM) for FinCEN Rule 6403, setting forth the pending regulations for the Corporate Transparency Act after having digested the comments submitted from interested parties. The proposed regulations in the NPRM address: (1) who must file; (2) when and how you must file; and (3) what information you must provide (including the scope of reportable Beneficial Owners). The following blog looks at point (3).

For an analysis of points (1) and (2), please refer to:

• The Corporate Transparency Act – Who must file
• The Corporate Transparency Act – When and how must you file

For an assessment of the impact of the Corporate Transparency Act on trusts, please refer to:

• The Corporate Transparency Act – The impact on trusts

 
What information must you provide (Prop. Reg. 31 CFR 1010.380(d))
 
The Corporate Transparency Act compels Reporting Companies to disclose all US and non-US Person Beneficial Owners of the Reporting Company. The definition of Beneficial Owners per the Corporate Transparency Act refers to “any individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise—(i) exercises substantial control over the entity; or (ii) owns or controls not less than 25% of the ownership interests of the entity.”
 
There is no definition of “substantial control” provided for purposes of the Corporate Transparency Act, but three indicators of substantial control specified are (1) service as a senior officer; (2) authority over the appointment or removal of any senior officer or dominant majority of the board of directors; and (3) direction, determination, or decision of, or substantial influence over, important matters of the Reporting Company. However, a fourth miscellaneous category seeks to captures anyone exercising any other form of “substantial control” over the Reporting Company. This control may be exercised directly or indirectly via proxies.
 
As for the ownership prong, in most cases of direct ownership the application of the threshold will demand little more expertise than grade school arithmetic. However, FinCEN is already safeguarding against the anticipated efforts to avert reporting through opaque structuring (“indirectly”) or financial chicanery (“through any contract, arrangement, understanding, relationship, or otherwise”).
 
Any equity interests in a Reporting Company (or interests treated as such, see below) that are held through another entity must be calculated as a percentage of ownership of the Reporting Company and attributed to the natural person(s) owning the other entity. This amount must be added to any other amounts owned directly or indirectly in the Reporting Company. Further, FinCEN intends to promulgate an aggregation requirement such that equity interests held by related or subordinate parties must be added to any other amounts owned directly or indirectly in the Reporting Company. The complexity of these aggregation rules is not yet settled. Finally, there are essentially no blocker companies to obscure or dilute Beneficial Ownership. Only if the Reporting Company is owned via a company exempt from reporting under the Corporate Transparency Act (e.g. utilities, banks, charities; see this blog - The Corporate Transparency Act – Who must file, for further elaboration) may the identity of the ultimate Beneficial Owner be withheld.
 
Furthermore, the use of capital or profit interests (including partnership interests), options, warrants, convertible debt instruments and any other type of contract right granting the holder control over a Reporting Company akin to equity-based control all count too. Thus, the concept of beneficial ownership for purposes of the Corporate Transparency Act is broad, tall, and deep. In theory, therefore, only the five specifically excepted parties–minor children, nominee agents, employees qualifying solely due to their employment, rights holders due to future inheritance and certain creditors–will escape disclosure of their “Beneficial Ownership Information.” In fact, the only parties from whom Beneficial Owners can conceal their identities under the Corporate Transparency Act are the Reporting Companies they ostensibly control. By means of a FinCEN Identifier, Beneficial Owners may be reported under an identifying number obtained from FinCEN. In this way, the Reporting Companies can fulfil their disclosure obligations without learning the identity of their Beneficial Owners.
 
In addition to its Beneficial Owners, a Reporting Company must also disclose its “Company Applicant” to FinCEN under the Corporate Transparency Act. The Company Applicant is the person who signed or authorized the Reporting Company’s registration or application for establishment with the relevant secretary of state or similar state office.
 
The Reporting Company must disclose the following Beneficial Ownership Information for each of its natural persons qualifying as a Beneficial Owner or Company Applicant–

• Full legal name;
• Date of birth;
• Current residential or business street address; and
• A unique identifying number from one of a set of approved documents and a copy of that document.

 
Furthermore, the Reporting Company must also disclose information on itself, as follows–

• Full legal name;
• A trade name or “doing business as” name, if any;
• Current business street address;
• The jurisdiction of formation; and
• The TIN or EIN issued by the IRS.

 
The Reporting Company and Beneficial Ownership Information reported on the FINCEN registry is non-public, but not completely inaccessible to outside parties. While the confidentiality measures around Beneficial Ownership Information will be the core theme of a subsequent FinCEN NPRM, the statute itself contemplates the distribution of confidential information to other US government agencies, to banks in special circumstances and even to foreign government authorities. The topic of confidentiality safeguards will be the focus of a later blog, once the NPRM for the Corporate Transparency Act focused on that subject is issued.
 
If you wish to learn more about the Corporate Transparency Act, please select one of the following topics–

• The Corporate Transparency Act Starter FAQs – The Genesis of a National Beneficial Owner Registry
• The Corporate Transparency Act – Who must file
• The Corporate Transparency Act – When and how must you file
• The Corporate Transparency Act – The impact on trusts ​

At the end of 2020, the US Congress enacted the Corporate Transparency Act, mandating that the Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury establish and operate a US Federal Beneficial Owner Registry. On 7 December 2021, FinCEN released the Notice of Proposed Rulemaking (NPRM) for FinCEN Rule 6403, setting forth the pending regulations for the Corporate Transparency Act after having digested the comments submitted from interested parties. The proposed regulations in the NPRM address: (1) who must file; (2) when and how you must file; and (3) what information you must provide (including the scope of reportable Beneficial Owners). The following blog looks at point (2) and the enforcement provisions.

For an analysis of points (1) and (3), please refer to:

• The Corporate Transparency Act - Who must file
• The Corporate Transparency Act - What information must you provide

For an assessment of the impact of the Corporate Transparency Act on trusts, please refer to this blog.

• The Corporate Act - The impact on trusts 

When and how must you file (Prop. Reg. 31 CFR 1010.380(a))
 
All non-exempt Reporting Companies–US or non-US–must file at least one Beneficial Owner disclosure (the “Initial Report”) under the Corporate Transparency Act. US Reporting Companies in existence (and non-US Reporting Companies already registered) as of the activation date of the final regulations will have one year from that date to file the Initial Report with FinCEN. US Reporting Companies set up (and non-US Reporting Companies first registered) on or after the activation date of the final regulations will be required to file their Initial Report with FinCEN within 14 calendar days of the date on which they are set up or registered, respectively.
 
Submission of the Initial Report is the most significant step–but not the final one–to compliance under the Corporate Transparency Act. Reporting Companies must monitor their Beneficial Owners for any relevant changes in circumstances, such as a change to the information reported in the Initial Report or the identities of the Reporting Company’s Beneficial Owners. In the case of such a relevant change in circumstance, the Reporting Company must submit an Updated Report within 30 days of the change.
 
Prior to the activation date, FinCEN will organize a reporting portal and issue instructions, prescribing the form and manner for disclosure under the Corporate Transparency Act. Whether each disclosure will be made under penalties of perjury is not yet certain. However, each person filing a report will have to certify that it is accurate and complete, so at a minimum FinCEN intends to hold accountable the individuals filing on behalf of the Reporting Companies too.
 
How is it enforced (Prop. Reg. 31 CFR 1010.380(g))
 
Penalties for non-compliance with the Corporate Transparency Act can accrue swiftly. Intentional non-compliance in all its forms–including the non-disclosure of required information, the disclosure of inaccurate information or documentary evidence and the failure to file an Initial Report or Updated Report by the applicable deadlines–is punishable by civil penalties of up to USD 500 for each day the non-compliance continues. Furthermore, criminal non-compliance may result in fines of up to USD 10,000 and imprisonment for up to two years, or both.
 
Of perhaps greater interest than the amounts of the penalties is the scope of their application. Not only are Reporting Companies themselves subject to these penalties, but evidently any Beneficial Owners who refuse to provide (or provide false or misleading) information are too. It is plain from this pressure on all parties to cooperate at the risk of penalty that FinCEN is determined that non-compliance with the Corporate Transparency Act not be seen as a cost of doing business.
 
If you wish to learn more about the Corporate Transparency Act, please select one of the following topics–

• The Corporate Transparency Act Starter FAQs – The Genesis of a National Beneficial Owner Registry
• The Corporate Transparency Act – Who must file
• The Corporate Transparency Act – What information you must provide
• The Corporate Transparency Act – The impact on trusts

At the end of 2020, the US Congress enacted the Corporate Transparency Act, mandating that the Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury establish and operate a US Federal Beneficial Owner Registry. On 7 December 2021, FinCEN released the Notice of Proposed Rulemaking (NPRM) for FinCEN Rule 6403, setting forth the pending regulations for the Corporate Transparency Act after having digested the comments submitted from interested parties. The proposed regulations in the NPRM address: (1) who must file; (2) when and how you must file; and (3) what information you must provide (including the scope of reportable Beneficial Owners). The following blog looks at point (1).

For an analysis of points (2) and (3), please refer to:

• The Corporate Transparency Act - When and how you must file
• The Corporate Transparency Act - What information must you provide

For an assessment of the impact of the Corporate Transparency Act on trusts, please refer to:

• The Corporate Transparency Act - The impact on trusts

 
Who must file (Prop. Reg. 31 CFR 1010.380(c))
 
In order to grasp the scope of entities charged with a reporting duty under the Corporate Transparency Act, it warrants considering the purpose of it. It is not tax-driven. Instead, this is an anti-money laundering and anti-terrorist financing tool. Accordingly, there are no efforts to identify which entities are likeliest to be used for tax evasion or to limit the information collected to that of US taxpayers. As such, it seems that Congress and FinCEN favor maximum coverage and enforceability over subtlety and efficiency; the Corporate Transparency Act is a mallet, not a scalpel.
 
To that end, the term “Reporting Company” is defined to include: (1) a US corporation; (2) a US limited liability company (LLC) or (3) any other US entity that is created by the filing of a document with state authorities (plus any non-US entity that registers to do business in a US state). The third prong is subject to interpretation, but envisaged to include limited liability partnerships, limited liability limited partnerships, business trusts (a/k/a statutory trusts or Massachusetts trusts), and most limited partnerships.
 
This scope is broad and the exceptions to it are limited to publicly traded companies, government entities and financial institutions, utilities, and other regulated firms. It is, however, neither consistent–as state laws may vary as to which entities must register–nor comprehensive–as it omits some partnerships, most trusts and all non-US entities except the handful registered to do business in a US state. On the other hand, it will be straightforward for FinCEN to compare registrants under the Corporate Transparency Act with the companies registered with the secretaries of state to identify scofflaws. Thus, in sum, it seems to be child’s play to avoid being in scope for the Corporate Transparency Act, but extremely difficult to get away with ignoring it, if you are in-scope.
 
For Swiss and other non-US administrators of US entities qualifying as Reporting Companies, the definition will be straightforward to apply with little need for a demanding analysis. However, in other circumstances, the presence of or a connection to a Reporting Company may be unexpected. For example, in many situations, people–US and non-US–hold US real property via a US LLC. As these LLCs are invariably disregarded for income tax purposes, they play little daily role in the investment structure. Now, they will trigger a disclosure duty. Less clear-cut scenarios may emerge out of fund structures, especially for alternative investments like private equity. These holding structures are set up using LLCs and other US entities in order to divide and allocate income streams for US income tax purposes. Due to these apportionments, a fund investor with a non-major share in the overall fund may in fact own significant portions of certain US entities embedded within the structure. In sum, Swiss and other non-US Persons will need to dissect their holding structure in order to conclusively determine which, if any, of the US entities they own or manage will qualify as Reporting Companies per the Corporate Transparency Act.
 
If you wish to learn more about the Corporate Transparency Act, please select one of the following topics–

• The Corporate Transparency Act Starter FAQs – The Genesis of a National Beneficial Owner Registry
• The Corporate Transparency Act – When and how must you file
• The Corporate Transparency Act – What information you must provide
• The Corporate Transparency Act – The impact on trusts