This article is our interpretation of the best practices to comply with the CTA, and is not legal advice.
The Corporate Transparency Act (CTA) went into effect on January 1, 2024, meaning many U.S. businesses — including private funds — must now comply with the new Beneficial Ownership Information (BOI) reporting requirements.
The new regulations in the CTA are wide-reaching, and require many businesses and corporate entities to report information regarding their owners, officers and other controlling persons. The act is a part of an effort by the Financial Crimes Enforcement Network (FinCEN) to combat money laundering, terrorist financing and other illicit activity, and the agency will maintain a database accessible to law enforcement agencies with the beneficial ownership information of all entities that are non-exempt from the reporting requirements.
As a private fund manager, you’ll first need to understand whether you are required to report under the CTA, and if so, what information you may have to gather. Our partner, Goodwin, has created a comprehensive toolkit to help you understand whether your fund is exempt, and if not, what your obligations are.
The CTA at a glance
What are the relevant deadlines?
Those required to report under the CTA will need to note the following deadlines:
- Non-exempt reporting companies created or registered prior to the effective date of January 1, 2024, will have until January 1, 2025, to file the required reports.
- Non-exempt reporting companies first created or registered in 2024 will have only 90 days to meet their initial reporting obligations.
- Non-exempt reporting companies first created or registered in 2025 and thereafter will have only 30 days to meet their initial reporting obligations.
What information should be reported to FinCen?
The BOI report should include the beneficial ownership structure for all owners or controlling parties (with 25% or greater interest) associated with their organization.
Who can access the information?
FinCEN will maintain the beneficial ownership information in a non-public database that FinCEN, law enforcement agencies, national security agencies and financial institutions will be able to access.
What are the penalties for failure to comply with the CTA?
Non-compliance or providing falsified information may lead to fines and criminal penalties.
Why is FinCEN enforcing the CTA?
Per our interpretation of the CTA, FinCEN is enforcing this requirement for non-exempt entities to identify and verify their beneficial ownership structure. This is in part to assist FinCEN, law enforcement and financial institutions with identifying who their customers are, as well as the controlling parties and decision makers behind each organization. This will create a database that can be referenced and reconciled.
What should fund managers do now?
Funds that were established prior to January 1, 2024 should gather their beneficial ownership documentation. Additionally, they should become familiar with the FinCEN website to ensure they are not exempt from filing. Once determined, fund managers should follow the filing instructions on the BOI reporting site.
Because the new rules require ongoing reporting (as opposed to, for example, annual reports filed with a secretary of state), compliance with the CTA will be a new work stream for many private capital firms. To begin your compliance programs, consider these steps:
Identify the org structure of your LPs down to the beneficial owners: If your firm is considered a reporting company, you must identify all beneficial owners of your LP entities and individuals to collect their required personal identifiable information. For more complex corporate structures, creating a centralized repository or register to maintain accurate and up-to-date information about your beneficial owners may be helpful. This register should be easily accessible and regularly updated to reflect any changes in ownership or control.
Understand your compliance requirements to ensure your firm’s ongoing adherence to the CTA: Understand policies and procedures for identifying and verifying beneficial owners, maintaining the beneficial ownership register, reporting beneficial ownership information to FinCEN and safeguarding the collected personal information. Once established, these policies should be periodically reviewed and updated to reflect any changes in FinCEN regulations and guidance.
Stay informed: FinCEN continues to provide guidance regarding the new rules. Firms should expect clarifications and updates from FinCEN as more companies begin their compliance programs via press releases and notifications that you can sign up for.
Seek professional guidance: We encourage our customers to consult with their legal counsel for guidance on complying with this new reporting regime.
Passthrough can help you streamline your beneficial ownership collection and maintenance, quickly and securely - find out how.
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