The final rule of the Financial Crimes Enforcement Network implementing the Corporate Transparency Act’s beneficial ownership requirements will become effective on January 1, 2024. Absent further guidance, sovereign wealth funds and similar non-US governmental institutions need to evaluate whether and to what extent the rule will apply to them, whether any exemptions are available, and whether operations can be restructured in order to take advantage of an available exemption.
On January 21, 2021, the Corporate Transparency Act (CTA) was enacted into federal law in the United States. The CTA establishes uniform beneficial ownership information (BOI) reporting requirements for certain business entities created or registered to do business in the US (Reporting Companies).
On September 30, 2022, the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of the Treasury and the US financial intelligence unit, published a final rule that implements the CTA’s BOI reporting requirements (Final Rule).
The CTA and the Final Rule may significantly increase the BOI disclosure requirements of any sovereign wealth fund or similar non-US governmental institution that invests and/or conducts other business in the United States through an affiliated entity that is created or registered to do business in the United States.
We have previously prepared a comprehensive overview of the CTA’s implementing regulations. Below are key takeaways of the CTA and the Final Rule.
Reporting Companies are bifurcated between domestic Reporting Companies and foreign Reporting Companies.
The CTA and the Final Rule contain 23 exemptions for certain types of entities. The types of entities exempted generally include a range of entities regulated in the United States, certain participants in the investment funds industry, tax exempt entities, large operating companies, and subsidiaries of certain exempt entities, among others.
Reporting violations (e.g., false reporting or failure to report) can lead to civil or criminal penalties for a Reporting Company and certain individuals associated with it.
The foregoing highlights are not an exhaustive discussion of the details surrounding the application of the CTA and the Final Rule and their accompanying compliance obligations. Further, FinCEN still needs to finalize additional rulemakings (as discussed in our two prior LawFlashes) regarding (1) the form that will be used to submit information; (2) access to BOI information; and (3) safeguards required to protect BOI.
In addition, FinCEN must amend the customer due diligence requirements of financial institutions to conform them with the requirement of the CTA and the Final Rule and develop the infrastructure to administer the Final Rule’s reporting requirements. Morgan Lewis is closely following the development of these related sets of rules.
For more information or inquiries as to the foregoing, please reach out to your contact at Morgan Lewis, who can coordinate with the firm’s Corporate Transparency Act Task Force to provide tailored advice, or any of the following: