Key Takeaways | Reporting For Duty: Preparing For the Corporate Transparency Act

The Corporate Transparency Act (CTA) has the potential to reshape the privacy landscape for family offices while also introducing considerable compliance burdens and legal risks.

During this webinar, Partner Daniel Bell and Associate Sebastian Orozco discussed the changes introduced under the CTA and their impact on family offices, including new reporting and disclosure requirements.

Top takeaways included:

1. Privacy is affected because of the CTA, but very little information is disclosed. No financial information, trade secrets or even the type of business is disclosed. Reported information is also not available to the public.
2. Getting Financial Crimes Enforcement Network (FinCEN) identifiers for reportable persons is likely the best approach long-term for clients with reporting companies that are concerned about privacy. This is because the burden of updating information when details like passport numbers, addresses, etc. change would shift to the individual beneficial owner. The reporting company wouldn’t need to update information via updated reports anymore, limiting the need for updated reports at the company level.
3. Private trust companies (PTCs) may not be reporting companies under the CTA if they are regulated PTCs (as they could qualify under the bank exemption). This creates planning opportunities with respect to entities owned or controlled by regulated PTCs. Specifically, some of these entities could qualify for subsidiary exemption from CTA reporting due to them being “controlled” by an exempt company (the regulated PTC).
4. Identifying beneficial owners of trusts with respect to reporting companies will likely be complex. Neither Substantial Control nor Ownership or Control are defined in the CTA but instead are defined under the FinCEN regulations. Additionally, the CTA does not define what constitutes ownership or how to calculate 25%, but this is addressed in the regulations as well and is quite expansive.
5. FinCEN will implement a cloud-based beneficial ownership secure system (BOSS), which has not yet been fully developed or implemented, and a FinCEN identifier application, which will require two-factor authentication with a login.gov account. While a draft of the proposed beneficial owner information (BOI) report and FinCEN identifier application has been issued, the actual format and mechanism for filing the BOI report with FinCEN, including the form and instructions, are still under development.
6. Family offices and clients are preparing for the CTA now to put themselves in the best reporting position if the BOSS and FinCEN identifier portals go live as planned on January 1, 2024. Things clients are doing to prepare include (1) reviewing structures for opportunities to simplify and optimize reporting (to the extent possible), including terminating unnecessary entities, restructuring entities and/or restructuring controlling person roles to tailor them to CTA reporting (along with FinCEN identifier planning), (2) creating CTA-specific tools and databases, (3) working with counsel to explore reasonable and defensible interpretations and reporting positions as guidance develops and (4) being more vigilant and purposeful with entity creation/use.