Anti-Money Laundering Act of 2020

The Anti-Money Laundering Act of 2020, which is part of the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”) and includes the Corporate Transparency Act

The Corporate Transparency Act (“CTA”) requires certain business entities (each defined as a “reporting company”) to file, in the absence of an exemption, information on their “beneficial owners” with the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of Treasury (“Treasury”). The information will not be publicly available, but FinCEN is authorized to disclose the information:

• to U.S. federal law enforcement agencies,
• with court approval, to certain other enforcement agencies,
• to non-U.S. law enforcement agencies, prosecutors or judges based upon a request of a U.S. federal law enforcement agency, and 
• with consent of the reporting company, to financial institutions and their regulators.

The CTA will create a database of beneficial ownership information within FinCEN. The purpose of the database is to provide the resources to “crack down on anonymous shell companies, which have long been the vehicle of choice for money launderers, terrorists, and criminals.”  The CTA will shift the collection burden from financial institutions to the reporting companies and will impose stringent penalties for failure to do so.

What is a Reporting Company?

A reporting company is a corporation, limited liability company, limited partnerships or other similar entities that are created by the filing of a document with a secretary of state or similar office under the law of a state, or formed under the law of a foreign country and registered to do business in the United States. 

A reporting company does not include the following entities (the “exempt entities”). These would be the most relevant related to syndication related entities:

• any other entity registered with the Securities and Exchange Commission (the “SEC”) under the Exchange Act;
• an investment company or investment adviser registered with the SEC;
• an investment adviser that has made certain required filings with the SEC;
• an entity that: (i) employs more than 20 employees on a full-time basis in the United States; (ii) filed in the previous year Federal income tax returns in the United States demonstrating more than $5,000,000 in gross receipts or sales; and (iii) has an operating presence at a physical office within the United States;

What Information Must be Reported?

A reporting company must provide the following information for each beneficial owner and each applicant, with respect to the reporting company (“beneficial ownership information”):

• full legal name;
• date of birth;
• current residential or business street address; and 
• a unique identifying number from an acceptable identification document (passport, driver’s license or other government issued identification document) or a FinCEN identifier.

If an exempt entity has a direct or indirect ownership interest in a reporting company, the reporting company or the applicant must only report the name of the exempt entity instead of the beneficial ownership information set forth above.

The CTA does not quantify the level of ownership by an exempt entity that requires reporting. In prescribing regulations under the CTA, Treasury should set forth a minimum level of ownership (such as 25%) that would give rise to a reporting obligation by the reporting company or an applicant.

Who is a Beneficial Owner?

Beneficial owners include any individual who, directly or indirectly, (i) exercises substantial control over the entity (e.g., any senior officer) or (ii) owns or controls 25% or more of the ownership interests.

Applicants include a maximum of two individuals: (i) the person who directly files the formation or registration document of the reporting company and (ii) the person who was primarily responsible for directing such filing. However, entities formed prior to Jan. 1, 2024, will not need to provide BOI reports for their applicants

To Whom is Beneficial Ownership Information Available?

Except as authorized under the CTA, beneficial ownership information is confidential and may not be disclosed, subject to the following: 

• a request from a federal agency engaged in national security, intelligence or law enforcement activity for use in furtherance of such activity;
• a request from a state, local or tribal law enforcement agency, if authorized by a court of competent jurisdiction to seek the information in a criminal or civil investigation;
• a request from a federal agency on behalf of a foreign law enforcement agency, prosecutor or judge under an international treaty, agreement or convention or upon an official request made by law enforcement, judicial or prosecutorial authorities in a trusted foreign country when no treaty, agreement or convention is available if certain conditions are met;
• a request made by a financial institution subject to customer due diligence requirements with the consent of the reporting company to facilitate the institution’s compliance with customer due diligence requirements under applicable law; or 
• a request made by a federal functional regulatory agency or other appropriate regulatory agency if the agency: (i) is authorized by law; (ii) uses the information solely as authorized; and (iii) enters into an agreement with the Secretary of the Treasury providing appropriate protocols governing the safekeeping of the information.

What are the Penalties for Violating the CTA?

It is unlawful for any person to willfully provide, or attempt to provide, false or fraudulent beneficial ownership information to FinCEN, or willfully fail to report complete or updated beneficial ownership information to FinCEN. Any person violating the reporting requirements of the CTA is liable for civil penalties of not more than $500 for each day that the violation continues and criminal penalties of imprisonment of up to two years and fines of up to $10,000.
Section 5336(h)(3)(C) of the CTA contains a safe harbor from the civil and criminal penalties if a person submitting incorrect information submits a report containing corrected information not later than 90 days after the date on which the person submitted the report originally, provided that the person was not acting to evade the reporting requirements and did not have actual knowledge that information contained in the original report was inaccurate.
Unauthorized knowing disclosure or use of beneficial ownership information is punishable by civil penalties of $500 for each day the violation continues and criminal penalties of imprisonment of up to 10 years and fines of up to $500,000.

Who is an Applicant?

The CTA defines the term applicant to mean “any individual who (A) files an application to form a corporation, limited liability company, or other similar entity under the laws of a State or Indian Tribe or (B) registers or files an application to register a corporation, limited liability company, or other similar entity formed under the laws of a foreign country to do business in the United States by filing a document with the secretary of state or similar office under the laws of a State or Indian Tribe.”

Timeline for Filing?

Companies created or registered before January 1, 2024, have until January 1, 2025, to file their initial reports. Companies created or registered after January 1, 2024, must file their reports within 30 days after such creation or registration. Companies must report any changes to the reported information within 30 days from when the relevant change occurs. This would include, for example, any change in the beneficial owners previously reported.