Navigating the Corporate Transparency Act:
Essential Insights for the Investment Management Industry
The Corporate Transparency Act (CTA), in conjunction with the Beneficial Ownership Information (BOI) Reporting Rule, has introduced transformative reporting requirements aimed at increasing transparency within the U.S. corporate landscape. For organizations and advisers alike, it is crucial to understand and comply with these new rules as the Financial Crimes Enforcement Network (FinCEN) heightens its focus on revealing beneficial ownership to counter financial crimes.
The Purpose and Scope of the Corporate Transparency Act
The CTA was created to curb illicit financial activities by mandating certain companies report information about beneficial owners and applicants to FinCEN. Generally, a beneficial owner is defined as anyone who owns or controls at least 25% of a company or has substantial control over it. A company applicant refers to the individual responsible for filing the initial registration documents of a company. These measures aim to bring greater transparency, requiring firms to provide specific identifying details.
The rules apply to most small and medium-sized enterprises, with notable exemptions for some larger and more regulated entities, as well as certain investment advisers and funds.
Exemptions from the Reporting Rule
The BOI Reporting Rule includes specific exemptions to simplify compliance for certain organizations.Key exemptions include:
- Registered Investment Advisers and Investment Companies: Entities qualifying as an Investment Company or Investment Adviser under sections 3 or 202 of the Investment Advisers Act of 1940 and registered with the Securities and Exchange Commission (SEC) are exempt. However, this only applies to SEC-registered advisers and does not extend to State-registered or Exempt Reporting Advisers (ERAs).
- Venture Capital Fund Advisers: An exemption applies for venture capital fund advisers who qualify under section 203(l) of the Investment Advisers Act, provided they file Schedule A and B of Part 1A of Form ADV with the SEC. This exemption is limited to advisers that file under the 203(l) exemption and does not cover those filing under the 203(m) exemption or State-registered advisers.
- Pooled Investment Vehicles: A pooled investment vehicle operated by an exempt investment company or adviser may also qualify. However, this exemption does not apply to funds advised by ERAs or non-SEC advisers.
These exemptions are significant for clients in sectors like finance and investment advisory. For example, many venture capital advisers and pooled investment vehicles may avoid complex reporting if they meet the exemption criteria.
The Reporting Process: Identifying Beneficial Owners and Company Applicants
For companies that are not exempted and now fall under the CTA, the next step is identifying and reporting all beneficial owners and applicants:
- Beneficial Owners: Any individual with significant control or who owns 25% or more of the company’s equity is considered a beneficial owner. Commonly, general partners of funds or limited partners with substantial ownership may fall under this category. However, individuals may qualify for exemptions, such as if they are part of a foreign pooled investment vehicle formed outside of the U.S.
- Company Applicants: For companies formed after January 1, 2024, identifying and reporting applicants who filed the original registration documents is essential. This includes both the individual who physically filed the documentation and those directing the filing process.
The identification process involves gathering critical information, including names, addresses, dates of birth, and government-issued identification numbers, which must be submitted to FinCEN as part of the compliance process.
Required Information for Reporting
For each beneficial owner and applicant, companies need to provide:
- Full legal name
- Current U.S. address
- Date of birth
- Identification number (from documents such as a passport, driver’s license, or state ID)
This detailed information is essential for FinCEN to maintain accurate records and support its goal of transparency.
Key Compliance Deadlines and Maintenance Requirements
To facilitate compliance, companies are required to adhere to specific reporting deadlines:
- Existing Companies (formed before January 1, 2024): The deadline for the initial report is set for January 1, 2025.
- New Companies (formed after January 1, 2024): These entities must submit a report within 30 days of receiving their formation notice.
- Loss of Exemption: If a previously exempt company no longer qualifies, they must file a report within 30 days of the status change.
Gryphon’s Role in Client Compliance
To navigate these new regulations, Gryphon Compliance has adopted an approach that includes evaluating each client’s exemption status, establishing a timeline, and ensuring the accuracy of information collected for each reporting entity. By providing clients with a draft filing for review and approval, Gryphon ensures that every step of the reporting process is thorough, accurate, and compliant.
The CTA and BOI Reporting Rule represent a significant shift toward corporate transparency. Gryphon is committed to assisting clients in understanding and fulfilling these requirements, ensuring a smooth and compliant filing experience. By adhering to these new standards, companies contribute to a more transparent business environment that discourages financial misconduct and supports the integrity of the U.S. financial system.
