Single family offices (SFOs) have been able to fly below the radar for a long time. Uncle Sam has always appreciated the need for privacy when it comes to SFOs and provided them with a carve out in the Todd-Frank Act. This has changed however with Congress enacting The Corporate Transparency Act (CTA) in 2021. The CTA is meant to prevent and combat money laundering, terrorist financing and tax fraud. The CTA applies to certain family offices that are structured as corporations or limited liability companies requiring a new reporting requirements for these offices.
The new law went into effect on January 1, 2024 which requires many domestic and international entities registered to do business in the US to disclose personal information around a company's beneficial owners.
Treasury Comes A Knocking
The new law seeks to identify beneficial owners, and while there is a list of 23 exemptions for various entities, family offices for the most part are not exempt and will have to register under this law. A beneficial owner includes any individual who directly or indirectly either exercises “substantial control” over the reporting company or owns or controls at least 25% of the “ownership interest” of the reporting company.
This new law is relatively easy to navigate, since the registration information it requires only needs to be filed once. While the initial registration is once, any changes or updates must be maintained by the filing entity in a timely manner. FinCEN has a well organized website for registration, complete with a video featuring Janet Yellan.
Reporting Requirements
Information required includes, but is not limited to, company name and general company information, and individual beneficial owner(s) and CTA applicant(s) personal information. Beneficial owner and CTA applicant information must include, but is not limited to: name, DOB, residential address, drivers license or passport number, and a photo from the aforementioned documents.
While the reporting requirements are relatively straight forward, this is information that family offices had not had to track on entities beforehand. This requires a greater level of organization with changes required to both procedures and potentially to their tech stack. Sensitive information such as state licenses and passports need to be tracked. Family offices will need to adjust their CRM and document storage capabilities and\or incorporate new applications such as ORCA or iPaladin.
The CTA reporting process takes place on the FinCEN website. Once the process has begun, there is a “safe harbor” period to correct or complete information; failure to comply with the reporting requirements can subject the reporting company, and relevant individuals to substantial civil penalties and criminal fines. Updates to any initial reports are required within 30 days of the change to avoid penalty. You do not want to mess with FinCEN.
Note
This is a summary overview of the new Corporate Transparency Act, and not a comprehensive overview. Risclarity does not provide legal or compliance advice. Compliance for certain entities is mandatory, and this requirement should not be taken lightly. For complete information, consult the FinCEN website.
Deadlines
The following deadlines are now in effect:
- A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial Beneficiary Of Interest (BOI) report. This deadline applies to most established companies.
- A reporting company created or registered in 2024 will have 90 calendar days to file after receiving actual or public notice that its creation or registration is effective.
- A reporting company created or registered on or after January 1, 2025, will have 30 calendar days to file after receiving actual or public notice that its creation or registration is effective.
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