Managing CTA compliance is going to be a significant task for companies when the CTA, or Corporate Transparency Act, takes effect. This is the first of a series of posts on some of the procedures companies will need to implement in order to manage their CTA compliance.
The CTA requires each reporting company to file a beneficial ownership report. That report must identify the company's "company applicant" and each "beneficial owner." For each company applicant and beneficial owner, the report must include each individual's:
1. Full legal name,
2. Date of birth,
3. Current residential address,
4. A unique identifying number from an acceptable identity document (such as an unexpired drivers license or passport) or a unique identity number generated by FinCEN; and
5. An image file of the document that provides the unique identifying number.
To prepare the beneficial ownership report, the reporting company will need to have in place a written understanding with its shareholders. The agreement, which could be incorporated into a company-wide shareholders agreement, should obligate each shareholder to provide the needed information.
To ensure data security, the reporting company will need to adopt a system that securely stores the collected data, permits access only to individuals who need access, and that facilitates timely reporting.
The CTA requires a reporting company to file an amendment within 30 days after any item of data covered by a previous report changes. This is a far-reaching requirement. Since the beneficial ownership report will include specific items of personal data, the company-wide agreement should obligate shareholders to notify the company's compliance leader when any of their personal information changes. Because the law requires an amendment within 30 days, shareholders must promptly report changes and the company's compliance leader must be prepared to file an amendment promptly after learning of the data change.
To manage CTA compliance, each reporting company should prepare a written procedure that the compliance leader will maintain. Part of that written procedure should include an IT system that collects and safely stores the collected information .
The proposed regulations that would implement the CTA contemplate that individuals will be able to obtain a "FinCEN Identifier," or a special ID number they can use for CTA purposes.
While it will help compliance efforts for individuals to have a FinCEN Identifier, merely having that ID number will not be a panacea for managing compliance.
The proposed regulations specify that an individual must submit to FinCEN all of the same information that would have been included in a beneficial report in their application to obtain a FinCEN Identifier.
Once an individual has a FinCEN Identifier, the individual may submit that to any company who requires the individual's information for a beneficial ownership report.
The individual, however, will be obligated to notify FinCEN when any of the individual's personal data changes in a way that would have triggered an amendment to the beneficial ownership report. The individuals will be obligated to notify FinCEN within 30 calendar days after any data change.
As a result, obtaining a FinCEN Identifier doesn't eliminate an individual's duty to amend his or her reported data within 30 days. Having the ID number simply shifts the amendment duty from the reporting company to the individual.
Individuals who are likely to be beneficial owners or company applicants should take steps to prepare for their filing duties under the CTA. While the new law has not yet taken effect, there are filing service providers who are allowing individuals to start the registration process in advance.
Update: FinCEN issued its Final Rule on beneficial ownership reports under the Corporate Transparency Act on September 29, 2022. Portions of this post may be superseded by the guidance in the Final Rule.