The Corporate Transparency Act (the “Act”) was enacted by Congress on January 1, 2021, as part of the National Defense Authorization Act. The Act’s purpose is to curtail shell companies often used in corporate transactions, including real estate transactions, from conducting illegal activities made possible by concealing the ownership and control of such entities. Entities covered by the Act, or “reporting companies,” must report the required information to the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (“FinCEN”).

Reporting companies, defined as any entity formed in the U.S. or formed outside the U.S. and registered to do business in the U.S., are required to file a report with FinCEN identifying each “beneficial owner” and “applicant” of the entity. A beneficial owner is an individual (i) who, directly or indirectly, exercises substantial control over the entity or (ii) owns or controls at least 25 percent of the ownership interests of the entity. An applicant is (i) the individual who files an application to form the entity (for U.S.-formed entities) or (ii) registers or files an application to register an entity to do business in the U.S. (for foreign entities). Notably, the Act excludes 23 types of entities from the definition of reporting company including publicly traded companies, tax-exempt entities, and other already heavily regulated entities.

Civil and criminal penalties will be imposed for willfully failing to comply with the Act and/or providing fraudulent information to FinCEN. Civil penalties include fines of up to $500 per day for non-compliance and criminal penalties include fines of up to $10,000 and/or possible imprisonment of up to two years.

While FinCEN proposed regulations for the Act on December 7, 2021, it has not yet set a date for the regulations to go into effect. Nevertheless, non-exempt reporting companies should begin preparing for when the regulations do become effective (the “Effective Date”) since the Effective Date will trigger the reporting requirements under the Act.

New entities formed after the Effective Date that are also reporting companies must submit a report to FinCEN within 14 days of formation or registration. Existing reporting companies must submit a report to FinCEN within one year of the Effective Date. If any information in a filed report changes, reporting companies have 30 days after the information change to file an updated report with FinCEN.

If you have questions about the matters raised in this alert or would like assistance in completing the forms, please contact Michael Rothstein at (312) 627-2280 ( [email protected] ), Daniel Schairbaum at (313) 568-5352 ( [email protected] ), Clara Trotta at (312) 627-2584 ( [email protected] ), or your regular Dykema contact.