FinCEN Seeks Public Comment on Opaque Corporate Transparency Act PDF Free Download
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Corporate Practice
ALERT
JUNE 2021
FinCEN Seeks Public Comment on Opaque Corporate
Transparency Act
Marshall Paul | Rick Carroll
The CTA, which likely will present a signicant ling burden for many small and medium-sized businesses, was part of
the National Defense Authorization Act, passed by Congress on January 1, 2021. Among other things, the CTA makes
FinCEN responsible for collecting data surrounding the ownership of corporations and other entities. The CTA requires
“Reporting Companies” to report the identities and information concerning their “Benecial Owners” at the time of
formation or registration of the Reporting Company and within one year after the date on which there is change with
respect to any information previously reported. Entities that were in existence at the time of adoption of the regulations
under the CTA and that qualify as Reporting Companies also have a reporting obligation. The effectiveness of the CTA is
subject to the adoption of Regulations, which is anticipated to take place within the next two years.
Since the passage of the CTA, commenters have voiced a host of questions concerning the meanings of many of its
terms in the CTA and the application of the CTA itself. For the purpose of drafting Regulations, FinCEN recently posted
an extensive list of questions with respect to which it is seeking public input. The following is a relatively small sample of
this extensive list of questions, but it provides a good avor of the complexity and potential implications of this new act:
1. The CTA requires information concerning corporations, LLCs and “similar entities.” How should FinCEN interpret
the phrase “other similar entity;” what factors should FinCEN consider in determining whether an entity qualies
as a similar entity; and what types of entities other than corporations and LLCs should be considered similar
entities?
2. The CTA limits the denition of reporting companies to corporations, LLCs, and other similar entities that are
“created by the ling of a document with a secretary of state or a similar ofce under the law of a State or Indian
Tribe” or “registered to do business in the United States by the ling of a document with a secretary of state or
a similar ofce under the laws of a State or Indian Tribe.” Does this language describe corporate ling practices
and the applicable law of the states and Indian tribes sufciently clearly to avoid confusion about whether an
entity does or does not meet this requirement?
3. The CTA denes the “benecial owner” of an entity, subject to certain exceptions, as “an individual who, directly
or indirectly, through any contract, arrangement, understanding, relationship, or otherwise” either “exercises
substantial control over the entity” or “owns or controls not less than 25 percent of the ownership interests of
the entity.” Is this denition, including the specied exceptions, sufciently clear, or are there aspects of this
denition and specied exceptions that FinCEN should clarify by regulation? Should the denition of Benecial
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The Financial Crimes Enforcement Network of the Department of Treasury (FinCEN) has made it clear that
the reporting obligations imposed on corporations, LLCs, and other “similar” entities under the new Corporate
Transparency Act (CTA) are anything but clear.
CORPORATE PRACTICE
ALERT
Owner be harmonized with the denition of that term adopted under the Securities Exchange Act of 1934?
4. Should FinCEN dene either or both of the terms “own” and “control” with respect to the ownership interests of
an entity? If so, should such a denition be drawn from or based on an existing denition in another area, such
as securities law or tax law?
5. Should FinCEN dene the term “substantial control?” If so, should FinCEN dene “substantial control” to mean
that no reporting company can have more than one benecial owner who is considered to be in substantial
control of the company, or should FinCEN dene that term to make it possible that a reporting company may
have more than one benecial owner with “substantial control?”
6. The CTA denes the term “applicant” as an individual who “les an application to form” or “registers or les an
application to register” a reporting company under applicable state or tribal law. Is this language sufciently
clear, in light of current law and current ling and registration practices, or should FinCEN expand on this
denition, and if so how?
7. In addition to the statutory exemptions from the denition of “reporting company,” the CTA authorizes the
Secretary, with the concurrence of the Attorney General and the Secretary of Homeland Security, to exempt any
other entity or class of entities by regulation, upon making certain determinations. Are there any categories of
entities that are not currently subject to an exemption from the denition of “reporting company” that FinCEN
should consider for an exemption pursuant to this authority, and if so why?
8. If a trust or special purpose vehicle is formed by a ling with a secretary of state or a similar ofce, should it be
included or excluded from the reporting requirements?
9. How should a company’s eligibility for exemption from the reporting requirements be determined? Should there
be different information requirements for operating companies and holding companies, for active companies
and dormant companies, or are there other bases for distinguishing between types of companies? Should exempt
entities be required to le periodic reports to support the continued application of the relevant exemption?
10. What information should FinCEN require a reporting company to provide about the reporting company itself to
ensure the benecial ownership database is highly useful to authorized users?
11. What information should FinCEN require a reporting company to provide about the reporting company’s
corporate afliates, parents, and subsidiaries, particularly given that in some cases multiple companies can be
layered on top of one another in complex ownership structures?
12. Should a reporting company be required to provide information about the reporting company’s corporate
afliates, parents, and subsidiaries as a matter of course, or only when that information has a bearing on the
reporting company’s ultimate benecial owner(s)?
13. What information, if any, should FinCEN require a reporting company to provide about the nature of a reporting
company’s relationship to its benecial owners (including any corporate intermediaries or any other contract,
arrangement, understanding, or relationship), to ensure that the benecial ownership database is highly useful
to authorized users?
14. What burdens are anticipated in connection with the new reporting requirements? How could FinCEN minimize
any such burdens on reporting companies associated with the collection of benecial ownership information in
a manner that ensures the information is highly useful in facilitating important national security, intelligence, and
law enforcement activities and conrming benecial ownership information provided to nancial institutions,
consistent with its statutory obligations under the CTA?
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CORPORATE PRACTICE
ALERT
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COPYRIGHT © 2021 SAUL EWING ARNSTEIN & LEHR LLP, A DELAWARE LIMITED LIABILITY PARTNERSHIP. ALL RIGHTS RESERVED.
This alert was written by Marshall B. Paul and Richard B. Carroll, both members of the Firm’s Corporation Practice. Marshall can be reached at
(410) 332-8956 or Marshall.Paul@saul.com. Richard can be reached at (302) 421-6887 or Rick.Carroll@saul.com. This alert was prepared for
information purposes only.
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The views in this article are those of the authors, not the Firm or its clients. The provision and receipt of the information in this publication (a) should
not be considered legal advice, (b) does not create a lawyer-client relationship, and (c) should not be acted on without seeking professional counsel who
have been informed of the specific facts. Under the rules of certain jurisdictions, this communication may constitute “Attorney Advertising.”
15. What should reporting companies or individuals holding FinCEN identiers be required to do to satisfy the
requirement that they update in a timely manner the information they have submitted when it changes, such
as when benecial owners or holders of FinCEN identiers (i) transfer substantial control to other individuals;
(ii) change their legal names or their reported residential or business street addresses; (iii) die; or (iv) when
a previously acceptable identication document expires? For example, should the reporting companies or
individuals be required to le a new report, or provide notice only of the information that has changed?
16. Should reporting companies be required to afrmatively conrm the continuing accuracy of previously
submitted benecial ownership information on a periodic basis (e.g., annually)? How should such conrmation
be communicated to FinCEN?
17. For those reporting companies without FinCEN identiers, what should be considered a “timely manner” for
updating a change in benecial ownership? How much time should reporting companies be given to update
benecial owner information upon a change of ownership?
18. The CTA contains a safe harbor for persons who seek to correct previously submitted but inaccurate benecial
ownership information pursuant to FinCEN regulations. How should FinCEN’s regulations dene the scope of
this safe harbor? Should the nature of the inaccuracy (e.g., a misspelled address versus the complete omission
of a benecial owner) be relevant to the availability of the safe harbor?
19. What steps should reporting companies be required to take to support and conrm the accuracy of benecial
ownership information? Should reporting companies be required to certify the accuracy of their information
when they submit it? Should reporting companies be required to submit copies of a benecial owner’s acceptable
identication document? Should a reporting company be required to report information about a company’s
“applicant” or “applicants” (the individual or individuals who le the application to form or register a reporting
company) in any report after the reporting company’s initial report to FinCEN? Why or why not?
Finally, FinCEN acknowledges that “[t]he process of forming legal entities may have ramications that extend beyond the
legal and economic consequences for legal entities themselves, and the reporting of benecial ownership information
about legal entities may have ramications that extend beyond the effect of mobilizing such information for AML/CFT
purposes.” Very signicantly, it asks “[h]ow can FinCEN best engage representatives of civil society stakeholders that
may not be directly affected by a benecial ownership information reporting rule but that are concerned for such larger
ramications?”
Without doubt, the CTA, regardless of FinCEN’s attempt to answer these questions in Regulations, will bedevil business
owners for many years to come.
