Maya Madden - LLC Corp Compliance

New CTA Rules for Reporting Companies

Posted on September 24, 2024October 31, 2024 by Maya Madden

New CTA Rules for Reporting Companies

New rules under the Corporate Transparency Act (CTA) now require corporations, limited liability companies, and other entities to report beneficial ownership, among other information, to the Financial Crimes Enforcement Network (FinCEN). For this reason, it is important that companies involved in this process should communicate with legal advisors with experience in this area and with other service providers directly involved in the formation or registration of legal entities to help timely comply with the new beneficial ownership reporting requirements under the CTA law.

This requirement was enacted as part of the Anti-Money Laundering Act in the National Defense Authorization Act of 2021. The CTA aims to combat money laundering, terrorist financing, organized crime, and other financial crimes by requiring corporations, limited liability companies (LLCs), and other entities formed or registered in the U.S. to promptly disclose their beneficial owners and their business. The CTA authorizes FinCEN to maintain a centralized, non-public database of information about its Beneficial Owners (BOI), accessible to law enforcement agencies, national security agencies, and financial institutions.

“Reporting companies” must file BOI reports with FinCEN within specific deadlines. There are two categories of reporting companies: domestic reporting companies and foreign reporting companies. National reporting companies include corporations, LLCs, and any other entity created by filing a document with a secretary of state or similar office or Indian tribe. Foreign reporting companies include corporations, LLCs or other entities formed under the law of a foreign country that are registered to do business in any state or tribal jurisdiction.

The reporting rule includes more than 20 exceptions from reporting the BOI for certain types of entities. Many of the exceptions are for entities that are already subject to significant regulation by federal or state government agencies. The BOI reporting rules are complex and raise many legal questions regarding the scope and interpretation of the various definitions and exceptions. For this reason, it is emphasized that it is very important that the companies involved communicate with legal advisors with experience in this area.

Whether you are a startup looking for a quick and economical way to submit documentation, a more established organization with multiple companies, or a company with different levels of ownership, it is extremely important to obtain legal support with solutions that will help you comply quickly and efficiently.

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Some of the services provided through the website www.llccorpcompliance.com may be considered legal services. To the extent that any service provided through the website or associated portal, including, without limitation, the collection of information, the use of the integrated software platform and the submission of reports to a federal government agency, is considered A “legal service” will be provided by Global Business Advisors, LLC (gba.law), through a licensed attorney working for the firm. Currently, attorneys working at gba.law are licensed to practice law in the state of Alabama and can provide services related to Alabama state law and United States federal law. Submission of any form through www.llccorpcompliance.com, payment of any fee and acceptance of the terms and conditions on any form completed through the website or as part of the BOI report management workflow, constitutes your agreement and authorization to the preparation and submission of a BOI report to FinCEN and constitutes your acknowledgment that you have the appropriate authorization to engage the reporting company to retain the services of llccorpcompliance.com for such purposes. Contacting gba.law through www.llccorpcompliance.com or www.gba.law or sending an email to any of our attorneys or staff does not create an attorney-client relationship or obligate gba.law to represent you or provide you with legal services. . We cannot represent you in any legal matter until we have determined that no conflict of interest exists for gba.law and until you agree to the terms of any representation by signing an engagement agreement with the firm. There is no guarantee that the quality of legal services to be provided by gba.law or the attorneys associated with the firm will be better than the quality of legal services provided by other attorneys.

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Organizations give their opinion regarding data collection for the BOI Report

Posted on August 12, 2024October 31, 2024 by Maya Madden

Organizations give their opinion regarding data collection for the BOI Report

Various organizations have weighed in on FinCEN’s proposed reporting forms regarding legally required identifying information for each beneficial owner. As has been officially declared, the Corporate Transparency Act (CTA) includes in its requirement the identification of a final beneficiary.

The FACT Coalition (The Financial Accountability and Corporate Transparency Coalition), in its press release suggests that FinCEN should implement the following changes to its beneficial ownership identification structure, based on the clear and simple language of the CTA Law:

Remove and review problematic obstacles that complicate the use of the directory by U.S. state, local, and tribal authorities, including the unfounded requirement that relevant authorities obtain a “court order” to access the directory.
Clarify the role FinCEN and other authorities will play in granting access to authorized directory users: Specifically, FinCEN should not assume substantive legal and administrative roles in approving directory access on a case-by-case basis that are not covered by the CTA.
Ensure that information submitted to FinCEN conforms to best data practices, including that it is validated and verified, to faithfully implement the CTA requirement that information be accurate, complete, and highly useful.
Fulfill the stated purpose of the CTA Anti-Money Laundering, Counter-Terrorism Financing (AML/CFT) and Sanctions Enforcement Act by allowing financial institutions to access beneficial ownership information in accordance with their broader AML responsibilities and sanctions screening, rather than restricting authorization criteria for access to a narrow subset of customer due diligence activities.
Eliminate burdensome restrictions, which lack legal basis, on trusted foreign partners accessing information through a request from a U.S. agency, to better facilitate the sharing of information for international investigations and prosecutions.

In response to all the criticisms raised, FinCEN Acting Director Himamauli Das testified before the House Financial Services Committee on the agency’s progress in implementing the Corporate Transparency Act. In his testimony, FinCEN’s acting director said: “We heard loud and clear the importance of validation and we agree with the importance of validation. There are legal considerations, cost considerations and then also a number of questions regarding how to implement this validation.”

The acting director’s testimony did not make clear how FinCEN would attempt to validate the BOI report data submitted by the reporting companies. In theory, FinCEN could validate this data in several ways. A reporting company’s BOI report is submitted by a senior official of the reporting company under penalty of perjury. So, in a significant sense, the official submitting the report is validating the accuracy of the data through the very act of submitting the report.

Additionally, it may be possible for FinCEN to compare certain data points with other official sources of information. For example, the name and residential address of a beneficial owner could be compared to tax returns available in IRS records for the beneficial owner. However, there is currently no regulatory pathway for that type of cross-checking and the data collected in the BOI report does not include the social security number of the beneficial owner.

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How will FinCen value the information provided in the BOI Report?

Posted on August 6, 2024October 31, 2024 by Maya Madden

How will FinCen value the information provided in the BOI Report?

Taking into account the reports issued by FinCEN since the Corporate Transparency Act (CTA) went into effect on January 1, 2024, it establishes that a reporting company must submit a BOI report identifying each of its beneficial owners. The report must provide the full legal name, date of birth, residential address, a unique identification number (such as a driver’s license or passport), and an image of the document containing the unique identification number, for each of the effective beneficiaries.

Companies that existed before January 1, 2024 will have one year to submit their first report. Companies incorporated on or after January 1, 2024 must submit their first report within ninety days after their incorporation.

FinCEN will compile BOI reporting information from reporting companies into a massive database. Under its proposed access rule, FinCEN will make BOI report data available to U.S. authorities, U.S. banks, and certain foreign law enforcement agencies for the purpose of combating money laundering and terrorist financing.

Due to the method that FinCEN has presented for data collection, it has received criticism from sectors for not implementing a system to validate the data received in the BOI report from the reporting companies.

The CTA statute required FinCEN to adopt regulations that would not only collect BOI reporting data, but would also be “very helpful (in) confirming” beneficial ownership information reported by banks and financial institutions under the CTA’s already implemented Customer Due Diligence (“CDD”) rules. 31 U.S.C. 5336(b)(F)(iv)(II).

Interest groups such as the FACT Coalition (The Financial Accountability and Corporate Transparency Coalition) have argued that FinCEN needs to do more than simply collect data from the BOI report. Its managers affirm that the data obtained also needs to be validated. As FACT CEO Ian Gary noted: “The Corporate Transparency Act represents nearly a decade of tireless work by a bipartisan group of lawmakers, experts and advocates, and its passage in 2021 was the legislative victory against money laundering. most substantial money of this generation. To realize the promise of this achievement, it is absolutely critical that FinCEN make important changes on the path to faithful implementation.”

In theory, FinCEN could validate this data in several ways. A reporting company’s BOI report is submitted by a senior official of the reporting company under penalty of perjury. So, in a significant sense, the official submitting the report is validating the accuracy of the data through the very act of submitting the report.

It is possible that FinCEN will wait to validate BOI reporting data until the first year of reporting is completed on January 1, 2025. This would provide a better understanding of the level of compliance and a better ability to forecast how a validation system could work.

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Directors of companies considered as final beneficial owners

Posted on July 30, 2024October 31, 2024 by Maya Madden

Directors of companies considered as final beneficial owners

We already know that a company that prepares its Beneficial Ownership Report (BOI) in accordance with the Corporate Transparency Act (CTA) has the obligation to identify each of the members of its board of directors (or directors) as final beneficiaries. Although FinCEN regulations do not require a reporting company to list all members of the board of directors as beneficial owners, there are some practical considerations that should be considered when preparing the report.

According to the CTA law, a company that submits the BOI report must include the identification of each of its beneficial owners. A beneficial owner is any individual who directly or indirectly owns 25% or more of the ownership interest in the company that is issuing the report, or who exercises substantial control over the company. Members of a company’s board of directors do not automatically exercise substantial control by virtue of their role as directors.

According to the information presented by FinCEN in FAQ D.9, it is expressly stated that a member of the board of directors of a reporting company does not always need to be identified as a beneficial owner. And yet, there is no provision in FinCEN regulations that describes the circumstances under which a director must be identified. The definition of “substantial control” within subsection (c) states that an individual has substantial control (and is therefore a beneficial owner) if this individual “has substantial influence over important decisions made by the reporting company.”

The content of the explanation in FAQ D.9 indicates that “whether a particular director meets any of these criteria [of substantial control] is a question that the reporting company must consider on a director-by-director basis.” This conclusion follows the regulations, but does not give a direct answer to the concept of “substantial influence.” Interpretations that suggest identifying only one board member who has disposition power or veto power create a bright-line test, but are not supported by the regulation.

The regulation does not say that a board member is a beneficial owner only when he has the power to determine or veto an important decision. There is nothing in the regulations that indicates that a “controlling” member of the board of directors is a beneficial owner, but a “passive” member of the board of directors is not. There is no objective way to determine when one director acts independently, while another acts passively. This lack of regulatory guidance is particularly serious when considering the impact that guessing wrong would cause.

In a potentially flawed BOI reporting process, the defendant will argue that he made a serious and judicious estimate of the facts and circumstances. The prosecutor will urge that the same facts simply demonstrate complicity and manipulation of information deliberately carried out by the accused. A defendant who needs to demonstrate the absence of a “deliberate” failure to disclose her case will have difficulty obtaining a pretrial dismissal, even with the strongest documentation in an honest internal decision process.

The lack of an official indication to determine which directors have substantial influence over important decisions implies the need for a conservative approach. If there is no regulatory leeway to exclude a particular director, then the only risk-free rule is one that includes all directors.

Based on this information, we can note that the most prudent approach while submitting a BOI report is to include each member of the board of directors as a beneficial owner.

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Financial Crimes Enforcement Network Priorities – FinCEN

Posted on July 4, 2024October 31, 2024 by Maya Madden

Financial Crimes Enforcement Network Priorities - FinCEN

The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) has determined its priorities for monitoring and enforcing the law against entities and individuals that fail to comply with their Beneficial Ownership Information (BOI) reporting responsibility.

FinCEN’s final rule on BOI reporting went into effect on January 1, 2024. FinCEN issued a template for beneficial ownership reporting, and is revising it in response to criticism from Congress and some industry sectors. The CTA requires newly formed reporting companies (as of 2024) to submit their beneficial ownership and company applicant information to FinCEN within 90 days of their formation. For reporting companies formed before January 1, 2024, the deadline to submit beneficial ownership information is December 31, 2024.

FinCen stated among its priorities to comply, the following points:

Review standards for collecting federal claims (31 CFR Parts 900-904).
Propose a regulation for the Establishment of National Examination and Supervision Priorities.
Propose a regulation for Reports and Records of Real Estate Transactions.
Propose revisions to customer due diligence requirements for financial institutions.
Issue a final rule for a pilot program on information sharing related to suspicious activity reports within a financial group.
Issue a final rule on access to and safeguards for beneficial ownership information and the use of FinCEN identifiers for entities.
Initiate a long-term study of Modifications to the Definition of Securities Broker or Distributor (Crowdfunding).
Initiate a long-term study on clarifying the requirement to collect, retain and transmit information on transactions involving convertible virtual currencies and digital assets with legal tender status.
Initiate a long-term study into the requirements for certain transactions involving convertible virtual currency or digital assets.
Begin a long-term study of Section 6110 of the Bank Secrecy Act involving antiques and arts dealers.
Initiate a long-term study of commercial real estate transaction reports and records.

The BOI Data that FinCEN collects from CTA reporting companies will be retained in a “Beneficial Ownership Secure System” or “BOSS” database. FinCEN issued a Notice of Proposed Rulemaking with respect to how various parties would access the BOSS (the “Access Rule“). Both industry advocates and Congressional sources criticized the Access Rule and FinCEN acknowledged that criticism, promising to change its approach. FinCEN has not yet issued a new NPRM with respect to the Access Rule.

A key aspect of the CTA was that the BOSS was supposed to be “highly useful” to banks and financial institutions, who are currently required to collect beneficial ownership information from their customers under a separate set of regulations under the Bank Secrecy Act. 31 CFR 230. FinCEN issued regulations to harmonize the CTA’s beneficial ownership information requirements with banks’ beneficial ownership data collection obligations under its Customer Due Diligence Rule. FinCEN’s latest announcement confirmed that the Reporting Rule has already gone into effect on January 1, 2024.

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Risks of reporting BOI without legal advice

Posted on July 2, 2024October 31, 2024 by Maya Madden

Risks of reporting BOI without legal advice

One of the most important aspects to consider within the new Corporate Transparency Act (CTA) are the risks of reporting the Beneficial Ownership Information (BOI) without proper legal advice. Even the United States Department of the Treasury within the Financial Crimes Control Network warns public accountants to be careful when preparing BOI reports, which poses a significant risk in the event that company shareholders do so by themselves or without the support of a lawyer knowledgeable on the subject.

Who is considered a declarant in BOI reports?

Section 380(g)(1) of the Reporting Rule provides that the “person” filing a BOI report may be an individual, a company, or another entity. FinCEN includes in this concept the fact that any person whom the reporting company authorizes to act on its behalf (an employee, the owner or a third-party service provider), can file a BOI report on behalf of the reporting company.

From a risk-reducing perspective, it is very important to consider that the company administrator should be the person who authorizes and files the BOI report with FinCEN with the proper advice of an attorney or legally supported organization.

Who assumes the legal responsibility for filing a BOI report?

Section 380(g)(4) states that: “if a person fails to report complete or updated beneficial ownership information to FinCEN, with respect to an entity: (i) such entity is required [by law] to report information to FinCEN, (ii) the reporting company does not report such information to FinCEN, and (iii) such person causes the failure or is a senior official of the entity at the time of the failure.”

This means that responsibility for information that was requested (but not reported or was reported with errors) falls on the senior management of the reporting company and on any person who “caused the failure.” The phrase “caused failure” can apply to a person who provides false information or refuses to provide accurate information required in the BOI report.

Additionally, when we refer to the Frequently Asked Questions published by FinCEN in what corresponds to question K.3, it clearly explains two specific points:

Can a person who files a report on behalf of a reporting company be held liable?

Yes. A person who knowingly files a false or fraudulent beneficial ownership information report on behalf of a company may be subject to the same civil and criminal penalties as the reporting company and its senior officials
Can a beneficial owner or company applicant be held liable for refusing to provide required information to a reporting company?

Yes. As described above, an enforcement action may be brought against a person who intentionally causes a reporting company to fail to submit complete or updated beneficial ownership information to FinCEN. This would include a beneficial owner or company applicant who intentionally fails to provide required information to a reporting company.

And the consequences of completing a BOI report without qualified legal advice could cause economic damage, as FinCEN also recognizes in question K2. What penalties do individuals face for violating BOI reporting requirements? As specified in the Corporate Transparency Act, a person who intentionally violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day the violation continues. However, the amount of this civil penalty is adjusted annually for inflation. At the time of publishing this FAQ, this amount is $591.

A person who intentionally violates BOI reporting requirements may also be subject to criminal penalties of up to two years in prison and a fine of up to $10,000. Potential violations include intentionally failing to file a report of beneficial ownership information, intentionally filing false beneficial ownership information, or intentionally failing to correct or update previously reported beneficial ownership information.

Conclusion

Any natural or legal person can be a “filer” of a BOI report. Considering this, it is extremely important that the “filer” be legally advised by a certified professional or by an organization that specializes in legally advising business owners, partnerships, corporations and subsidiary companies.

Author: Maya Madden

New CTA Rules for Reporting Companies

New CTA Rules for Reporting Companies

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Organizations give their opinion regarding data collection for the BOI Report

Organizations give their opinion regarding data collection for the BOI Report

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How will FinCen value the information provided in the BOI Report?

How will FinCen value the information provided in the BOI Report?

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Directors of companies considered as final beneficial owners

Directors of companies considered as final beneficial owners

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Financial Crimes Enforcement Network Priorities – FinCEN

Financial Crimes Enforcement Network Priorities - FinCEN

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Risks of reporting BOI without legal advice

Risks of reporting BOI without legal advice

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