FinCEN eliminates CTA requirements for all U.S. companies and U.S. Individuals
As we discussed in our previous update on the Corporate Transparent Act, the U.S. Treasury Department has announced that it will issue an interim regulation excluding U.S. citizens and companies from CTA reporting requirements. FinCEN has now limited the scope of CTA to non U.S. parties. This will dramatically reduce the operational burdens and costs of the CTA for registered investment advisers.
Key Updates to CTA Regulations
On Friday, March 21, FinCEN published an interim rule that:
- Excludes from CTA reporting obligations all “U.S. reporting companies” – any corporation, limited liability company, or other entity that was “created by the filing of a document with a secretary of state or any similar office under the law of a [U.S.] State or Indian tribe”;
- Exempts “foreign reporting companies” – foreign entities registered to do business in the United States – from providing beneficial ownership information concerning U.S. persons who are beneficial owners of the foreign reporting companies;
- Exempts U.S. persons from providing beneficial ownership information to foreign reporting companies; and
- Extends the deadline for foreign reporting companies to file initial beneficial ownership reports, or update or correct previously filed beneficial ownership reports, to 30 days after the date of the publication of the interim rule, or 30 days after their registration to do business in the United States, whichever comes later.
Pooled Investment Vehicle Exemption Modified for Non-U.S. Vehicles
In addition, the new interim rule significantly adjusts reporting obligations for non-U.S. pooled investment vehicles, such as private funds. Prior to this, non-U.S. pools of investment vehicles that were eligible for the CTA pooled vehicle exemption still had to report a single individual who exercised’substantial control’ over the company. The new interim rule requires foreign pooled investments vehicles to report beneficial owner information only if the individual has “substantial” control over the entity. If more than one person exercises substantial control over an entity, and at least one is not a U.S. citizen, the entity will have to report information about the non-U.S. citizen. The person with the most authority over the strategic direction of the entity is the one who must report. This requirement should provide relief to many non-U.S. fund. We expect that the majority of non-U.S. fund will not be required to report under the CTA because they do not register as a business in any U.S. State and will therefore not need to rely upon the pooled vehicle exemption. Fund sponsors should check whether investment vehicles are registered. The requirements for registration may vary by U.S. State or asset. Real estate holding vehicles are an area that should be of particular interest, as a non-U.S. company that owns property in a U.S. State could be required to register there. Of course, conducting such activities through a wholly-owned U.S. entity would not trigger CTA reporting obligations under the interim rule.
Comments on the Rule
FinCEN declined to accept public comments on the interim rule prior to its implementation, finding good cause given pending litigation and reporting requirements. FinCEN invited comments on the interim regulation within 60 days after its publication. FinCEN will review and address these comments when it issues a final rule, which FinCEN plans to do this year.
Consequences Of The New Interim Rule
The New Interim Rule Reduces the Number of Companies That Will Be Obligated To File Beneficial Ownership Reports. FinCEN estimated in the original CTA final rule that after the first year of implementation, approximately 5,000,000 entities would be required to file reports each of the nine years following. The new interim rule estimates approximately 5,000 entities will be required to submit reports each year. Please contact your usual contacts at the firm if you have any queries regarding this memorandum.
