The Corporate Transparency Act (CTA), enacted to enhance corporate transparency and combat financial crimes, introduces new reporting requirements that significantly impact various business entities, including funds and Special Purpose Vehicles (SPVs).
Administered by the Financial Crimes Enforcement Network (FinCEN), these regulations mandate the disclosure of beneficial ownership information (BOI) to prevent illicit activities such as money laundering and terrorist financing.
Scope of the Reporting Requirements
Effective January 1, 2024, many companies are required to report information about individuals who ultimately own or control them. This includes corporations, limited liability companies (LLCs), and other similar entities. The reporting obligation extends to funds and SPVs, which are commonly used in investment structures and financial transactions.n The primary objective is to create a national database for use by national security and law enforcement agencies to prevent the use of shell companies for criminal activity.
Key Reporting Obligations
Entities subject to the BOI reporting requirements must file a Beneficial Ownership Information Report (BOIR) with FinCEN. The report requires detailed information about the entity's beneficial owners—individuals who directly or indirectly own or control 25% or more of the entity or exercise substantial control over it. Information to be reported includes:
Full legal name
Date of birth
Residential or business address
A unique identifying number from an acceptable identification document (e.g., passport or driver's license)
Entities created or registered before January 1, 2024, are required to file their initial BOIR by December 31, 2024. Entities created or registered after January 1, 2024, must file within 90 days of their creation or registration.
Implications for Funds and SPVs
Funds and SPVs often have complex ownership structures, which can complicate the identification of beneficial owners. Compliance with the BOI reporting requirements necessitates a thorough review of these structures to accurately determine and report beneficial ownership. Failure to comply with the reporting requirements can result in significant penalties, including fines of $500 per day for non-compliance.
Current Status and Compliance Considerations
As of December 2024, a federal district court has issued a nationwide preliminary injunction that enjoins the CTA's reporting requirements and stays all deadlines to comply.While this injunction is in place, reporting companies are not currently required to file BOI reports and are not subject to liability for failing to do so. However, entities may continue to voluntarily submit BOI reports during this period.
Given the evolving legal landscape, funds and SPVs should stay informed about the status of the CTA and related reporting a requirement. It is advisable to consult with legal and compliance professionals to ensure readiness to comply with BOI reporting obligations once any legal uncertainties are resolved.
For more detailed information and updates, entities can refer to FinCEN's official website: https://fincen.gov/boi