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