Why might a 255 foot yacht named “Tango” anchored in Mallorca make your life more complicated? Because its owner, Russian oligarch Viktor Vekselberg, had been sanctioned by the U.S. in 2018 for “contributing to the situation in Ukraine.” According to the US Treasury, ownership of the yacht had been obfuscated by use of a number of shell companies.

As a result of this and numerous examples of alleged money-laundering involving shell companies, Congress included a provision in the 2021 Defense Authorization Act that authorized the Treasury to adopt rules requiring small companies to identify their ultimate individual owners and senior officers. The operative section of that bill is called the Corporate Transparency Act (CTA).

On September 30, 2023, the Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury adopted a final rule (the “Rule”) under the CTA. It requires most small entities to register with FinCEN and report information about the individual who own 25% or more of the company, who otherwise have substantial control over the entity, or who are its senior officers.

There are nuances in the Rule addressing such matters as the death of a beneficial owner, the treatment of joint ownership, ownership by minor children, and the definitions of “substantial control” and “senior officer.” Somewhat different rules apply to foreign entities. This article describes the basics, but not all the details, of the Rule. FinCEN has made a CTA compliance guide available here.

FinCEN has created a website providing access to the necessary reporting forms. FinCEN is authorized to share the information reported on the forms with law enforcement and financial institutions.

Small entities that were formed prior to 2024 must complete their reports in calendar year 2024; small entities formed in 2024 or afterwards must file within 30 days of entity formation. If the information filed become out-of-date, amendments must be filed within 30 days. Entities formed after 2023 must also include information about the individual who makes the state or federal filing forming the company and, if different, the individual directing that formation.

The willful failure to report complete or updated beneficial ownership information to FinCEN may result in civil penalties of up to $500 per day or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. Senior officers of an entity that fails to file a required CTA report may be held accountable for that failure.

There are 23 exemptions from the reporting requirements of the Rule. For example, exemptions apply to:

• “Large operating companies,” those with (a) at least 20 full-time employees in the U.S., (b) a physical office in the U.S., and(c) previously filed federal income tax returns showing more than $5 million in revenue derived from U.S. sources.
• Tax exempt entities.
• Entities subject to government regulation such as banks, insurance companies, securities brokers and investment advisors.
• SEC reporting companies.
• Inactive companies formed before January 1, 2020 that have no foreign ownership and have had no change in ownership in the last 12 months.

We can prepare and submit such filing for you. If you would like assistance, please contact Kira Mazzie at kmazzie@sunsteinlaw.com or Tom Carey at tcarey@sunsteinlaw.com.