The Corporate Transparency Act:
Guidelines and Insights

The CTA is new legislation which aims to deter and detect financial crimes. .It is part of the larger Anti-Money Laundering Act. Under the new law, the government targets tax fraud, terrorism, and money laundering. The aim is to peel back the layers of anonymity associated with shell companies and other corporate structures, bringing transparency to the true ownership of corporations, including nonprofits and not-for-profits. The U.S. Financial Crimes Enforcement Network (FinCEN) has been charged with implementation of the CTA.

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.Volunteer association board members must comply with the CTA. Failure to do so may result in both civil and criminal penalties. As set forth in the following section a small number of associations may be exempt in which case board members need not comply, but it is recommended that the exception is confirmed with your attorney, since there are civil and criminal penalties for noncompliance.

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U.S. formed corporations, limited liability companies, and any entity that registers its formation with the state, is required to report information to FinCen and disclose who controls the activities of smaller businesses.. Non-profit or not-for-profit community associations are required to comply, unless they are tax exempt. A very small minority of community associations are tax exempt. Also exempt from filing are associations with more than 20 employees or annual gross revenues of over five million dollars.

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Information regarding “Beneficial Owners” must be provided to FinCEN.A “beneficial owner” is defined as any individual who, directly or indirectly, either:

1. exercises “substantial control” over a reporting company, or
2. owns or controls at least 25 percent of the “ownership interests” of a reporting company.

The rule also defines the terms “substantial control” and “ownership interest,” and clearly includes all members of a community association board and may also include the manager or managing entity. In defining who has “substantial control,” the rule sets forth a range of activities that would meet that standard. An individual can exercise substantial control over a reporting company if they have “substantial influence over important decisions” of the reporting company, but agents – those whose control is contractual and may be terminated – are not required to report. In most instances management companies are likely to be defined as agents. There will instances where a single owner of sufficient units to influence board decisions, or the developer of a project who appoints board members will be required to also report.

The term “substantial control” in the association context includes anyone who:

• Directs, determines, or has substantial influence over important decisions made by the reporting company, including decisions regarding:
  • The nature, scope, and attributes of the business of the association, including the sale, lease, mortgage, or other transfer of any principal assets of the association;
  • Major expenditures or investments, issuances of any equity, incurrence of any significant debt, or approval of the operating budget of the association;
  • Compensation schemes and incentive programs for senior officers; or
  • The entry into or termination, or the fulfillment or non-fulfillment, of significant contracts.

Note: .As it pertains to managers, this will require a legal judgment concerning whether a manager or management company exercises “substantial influence” over an association’s activities and whether that influence flows solely from the contractual rights or duties of the manager. The term “substantial influence” is one that requires analysis of the relationship between the association and the managing entity. Several of these items, including substantial influence over approval of the operating budget, borrowing relationships, or entering into or terminating significant contracts, will require special attention.

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• Associations created or registered before January 1, 2024, will have one year – until December 31, 2024 – to file their initial reports.
• Associations created or registered after January 1, 2024, will have 30 days after receiving notice of their creation or registration to file their initial reports.

.In addition, Associations will have 30 days to report changes to the information in their previously filed reports and must correct inaccurate information in previously filed reports within 30 days of when the association becomes aware or has reason to know of the inaccuracy of information in earlier reports.

Note: This means that within 30 days of each election or appointment of a new trustee or director, a report must be filed with FinCEN.

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The reporting information required by FinCEN requires the following:

• For every individual who is a beneficial owner of the association:
  • • The full legal name of the individual;
    • The date of birth of the individual;
    • A complete current address consisting of:
      • In the case of a company applicant who forms or registers an entity in the course of such company applicant’s business, the street address of such business; or
      • In any other case, the individual’s residential street address;
    • A unique identifying number and the issuing jurisdiction from one of the following documents:
    • A non-expired passport issued to the individual by the United States government;
    • A non-expired identification document issued to the individual by a State, local government, or Indian tribe for the purpose of identifying the individual;
    • A non-expired driver’s license issued to the individual by a State; or

  .

  • A non-expired passport issued by a foreign government to the individual, if the individual does not possess any of the documents described above; and
  • An image of the document from which the unique identifying number of the required document was obtained.

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Failure to comply with the CTA’s reporting requirements may lead to civil and criminal penalties, including a maximum civil penalty of $500 per day (up to $10,000) for each violation and imprisonment for up to two years. The reporting requirement is not to be taken lightly.It’s important to note that these penalties underscore the seriousness with which the U.S. government views corporate transparency and the integrity of the financial system.. The CTA is a clear indication that entities are expected to engage in rigorous and truthful reporting of ownership information to prevent illicit activities like money laundering and financial fraud.

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The reporting may be accomplished by filling out a form on the website or by downloading a PDF form, completing it, and uploading it to the website directly.

For the most current and detailed information regarding penalties and compliance requirements, it’s advisable to consult the latest guidance from FinCEN or legal experts specializing in corporate law and financial regulations. .Becker is prepared to assist our clients in making CTA determinations and assisting in completing the online reporting form as of January 1, 2024. Please contact your Becker attorney for more information concerning this.

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• Associations must comply with initial reporting requirements by December 31, 2024 unless they fall within one of the exceptions.
• All board members of a reporting association are definitionally considered to have “substantial influence” over the association, whether or not they actually exercise such influence, and must provide the required information to allow the association to fully report.
• The CTA requires that all members of the Board provide the following items: Full legal name, date of birth, current home address, passport or driver’s license number and issuing jurisdiction (i.e.: County or State issuing the passport or license).
• The management company need only be included in the reporting requirements if they have substantial control of the association’s business activities which may require legal analysis.
• Any time a new board member is elected or appointed, an update to the prior information must be submitted within 30 days.
• Board members who refuse to comply would no longer be eligible to serve on the Board.
• Failure to comply could result in civil penalties and criminal charges.

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