The Corporate Transparency Act (CTA) was passed in 2021 to prevent money laundering and financial fraud in the U.S. financial system. Eighteen months later, the Financial Crimes Enforcement Network (FinCEN) has issued a final ruling that provides more clarity around the statutory reporting requirements of the Act.
With this reporting mandate going into effect on January 1, 2024, now is the time for your organization to determine if it is affected and plan for compliance. Follow these steps to be prepared.
Determine if your entity is affected.
The CTA sets uniform requirements for certain types of corporations, limited liability companies and other entities to report beneficial ownership information (BOI). For purposes of CTA reporting, the Financial Crimes Enforcement Network (FinCEN) defines a “reporting company” as either of the following:
- A domestic reporting company, which is a corporation, limited liability company (LLC), or any entity created by the filing of a document with the Secretary of State or any similar office under the law of a state.
- A foreign reporting company, which is a corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state by the filing of a document with the Secretary of State or any similar office.
Certain entities that were not created through the filing of a document with the Secretary of State or similar office are exempt from this reporting requirement. These include tax-exempt organizations, banks and broker-dealers, investment companies and insurance companies. “Large operating companies” (those that employ more than 20 full-time employees in the U.S., have a physical office within the U.S. and have reported gross receipts or sales in excess of $5 million in the previous year on a federal income tax, or information return) are also exempt.
Identify beneficial owners.
If your organization meets the definition of a “reporting company,” the next step will be to identify the beneficial ownership information (BOI) it is required to report, beginning next year. Under the CTA, a beneficial owner is an individual who meets at least one of two criteria: (1) Owns or controls at least 25% of the ownership interest of the company, or (2) exercises substantial control over the reporting company.
The initial BOI report will require the reporting company to identify itself and report four pieces of information about each of its beneficial owners: name, birthdate, address, and a unique identifying number from an acceptable identification document (and a copy of the document).
Plan for timely compliance.
While the new rule is effective January 1, 2024, reporting companies have until January 1, 2025 to file their initial reports. Reporting companies that are created or registered after January 1, 2024 will have 30 days after creation or registration to file their initial reports. After the initial reports, entities will be required to file updates within 30 days of a change in BOI.
Many hedge funds and other entities in the Financial Services sector will be subject to these new reporting requirements. Please contact your Grassi advisor or John Zoraian, Principal in our Fund Administration practice, for more information.
John Zoraian John Zoraian is a Principal in Grassi”™s Financial Services practice, where he provides expert fund administration, compliance and advisory services to hedge and private equity funds, funds of funds, master-feeders, investment advisors, broker-dealers, family offices, fintech entities and more. John draws from more than 35 years of experience in the hedge fund business. Prior to joining Grassi, he established S&Z Fund Services, a division… Read full bio
