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CTA Regulatory Changes: The Gift That Keeps On Giving
December 19, 2023
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Masttro provides the assurance and peace of mind wealth owners — and those that serve them — need to confidently navigate regulatory changes.
Key Takeaways
In the blink of an eye the Corporate Transparency Act (CTA) go into effect on January 1, 2024, putting an estimated 32 million entities on the hook for new regulatory requirements and reporting standards.
The intricacies abound, so we asked a lawyer to break it down for us so you wouldn’t have to.
According to our subject matter expert, Kevin Keen, “anyone who owns, controls, or manages a U.S. company — including many unsuspecting offshore ultra-high-net-worth families, trust companies, and even multinational enterprises — may have reporting obligations under the CTA.”
And it’s safe to say these new obligations will be a taller (and far more urgent) order for wealth owners still relying on manual processes for their existing reporting requirements.
"Impacted businesses need to start preparing before year-end to ensure timely compliance. The to do list should include reviewing structures to simplify and optimize their reporting posture; establishing internal policies, procedures, and databases; and consulting with legal counsel." — Kevin Keen, Partner, Katten
If that sounds like quite a mountain to move, you should know that with the right wealth tech solution, more regulations don’t have to mean more problems.
Considering there’s no world in which there’s less regulation going forward — there will only be more — there’s no time like the present to upgrade to a wealth tech solution that’s invested in staying ahead of regulatory changes just like this one, so wealth owners have nothing to worry about when they get there.
With all that in mind, here’s a breakdown of what to expect when the CTA goes into effect — and how Masttro takes away the burden of regulatory change off of wealth owners, and replaces it with peace of mind.
Spoiler: the data needed for timely compliance with the CTA already lives in the Masttro system.
Fast facts about the Corporate Transparency Act
The Why
At its core, the purpose of the CTA is to deter money laundering and other nefarious activities among smaller, unregulated businesses registered to operate in the United States. We’ll call those Reporting Companies from here on out.
The How
The end game is to create a central (and non-publicly accessible) registry of the beneficial owners affiliated with each Reporting Company using beneficial ownership information (BOI) reports, in combination with personal identifying info about the company and beneficial owners, eFiled with the Financial Crimes Enforcement Network — or FinCEN hereafter.
That might sound straightforward enough, but here’s where it can get cumbersome: Affected entities will be responsible for keeping their BOI reports up to date with the FinCEN over time — and updates are due within 30 days of any change to the BOI they previously provided.
If beneficial ownership percentages were written in stone, this would be no big deal. But the reality is they can ebb and flow nonstop over the course of the year — and that data will have to be formally updated with FinCEN whenever they do.
The Who
By definition, the CTA applies to domestic C corporations, S corporations, LLCs (and similar foreign business entities registered to do business in any U.S. state) —
- With fewer than 20 full-time U.S.-based employees
- Without an office in the U.S.
- And with less than $5 million in domestic gross receipts or sales.
In plain English, that means many family offices formed as a Corporation or LLC will be impacted by new reporting requirements. And if a family office happens to invest in a Reporting Company — or owns or controls a 25% ownership interest in one — they’ll have to disclose additional information.
The same goes for individual wealth owners who’ve formed a legal entity to hold real estate or other property. But trusts are on the list of exempt entities unless they own or control a 25% ownership interest in a Reporting Company, making them a beneficial owner.
The What
Here’s the easy part. Reporting Companies have to disclose the below standard information about the entity:
- Legal name and trade name
- Business address
- Jurisdiction information
- And their U.S. IRS taxpayer identification number.
Now for the cumbersome part. Reporting Companies also have to disclose personal information about each beneficial owner. Again, that’s any individual who exercises substantial control over a Reporting Company or owns or controls a 25% ownership interest.
The required disclosures for each beneficial owner include:
- Their legal name
- Date of birth
- Current address
- And an image of an official document with a unique identifying number (think: passport or state ID)
And if new beneficial owners emerge — or if ownership percentages change — all of that data will have to be updated with FiNCEN.
The When
For any Reporting Company in existence (and registered) before January 1, 2024, initial BOI reports must be filed by January 1, 2025.
Again, it’s the Reporting Company’s responsibility to keep its BOI report up to date with FinCen — so new reports will have to be submitted each and every time beneficial ownership changes. Naturally, there are penalties like criminal fines and imprisonment for not doing so.
The Where
The BOI reports themselves will be submitted online via a secure filing system on FinCEN’s website.
As for where to find the information needed in the BOI reports? Well, that comes down to the current granularity and accessibility of financial reporting at each Reporting Company today.
What wealth owners and those who serve them should be doing right now
Beyond the obvious next steps, like reviewing FinCEN’s Small Entity Compliance Guide and obtaining a FinCEN Identifier, our subject matter expert recommends making these steps a priority:
- Reviewing structures to simplify and optimize reporting
- Establishing internal policies, procedures, and databases to support BOI report filing
- And consulting with legal counsel
Our two cents is that it’s also worth verifying any existing beneficial owner records, and evaluating whether they’re accurate and accessible enough to reliably satisfy the new CTA requirements.
If there’s any shadow of a doubt, upgrading to a tool like Masttro can give wealth owners and those who serve them the ultimate gift of peace of mind.
The kind of 360 degree wealth data the CTA calls for already lives in the Masttro platform, down to the structure of underlying investments. With accurate records at their fingertips, wealth owners and those who serve them can file and update BOI reports without breaking a sweat.
For better or worse, wealth owners can always count on new regulatory changes just around the corner. So, their wealth tech solution should be focused on their needs today, tomorrow, and 15 years from now to be future proof against changes foreseen and unforeseen.
With features so complete that future regulatory applications are already built into them, they’ll be ready for anything with Masttro.
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