Corporate Transparency Act: The Final FinCEN Rule

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Caitlin: Hello, everyone, and welcome to today's webinar, "The Corporate Transparency Act: FinCen Final Rule for Reporting." My name is Caitlin Alaburda, and I will be your moderator.

Joining us today is Paul Hodnefield. Paul is associate general counsel for CSC, where he is responsible for advising the company regarding real estate recording, notary, Uniform Commercial Code, and other public record transaction services. And with that, let's welcome Paul.

Paul: Thank you, Caitlin. As Caitlin said, my name is Paul Hodnefield, and I've been following the Corporate Transparency Act for quite some time now, actually ever since it was enacted, and paying close attention to any developments. This presentation today is another update on these developments with the Corporate Transparency Act or the CTA is it's more commonly known.

The Act imposes new federal compliance requirements for those companies within its scope. It is likely to have a greater impact on the company formation process than any other event over the past 100 years and perhaps even sometime in the 19th century.

The CTA requires many companies to report their beneficial owner, applicant, and certain company information to FinCEN, and I'll explain who FinCEN is a little bit more in more detail in a moment, and it does require the reporting companies to keep that information accurate and up to date. Like many federal laws, the CTA largely left critical details, such as effective dates, deadlines, and so forth to regulation, which are promulgated by the Treasury Department and more specifically the department within Treasury called the Financial Crimes Enforcement Network.

At the end of September, FinCEN released the final rule or I should say the final rule for the reporting segment of the regulations. The final rule addresses three important issues related to the CTA — who must file reports, the timing of the reports, and the content of the reports. The final rule however still doesn't clear up all the ambiguities of the CTA or the obligations of those who must report. More clarifications are expected to be forthcoming from FinCEN over the course of the next year.

The regulations for certain other aspects of the CTA, such as obligations of the filing office, access to beneficial owner information, and some other issues are still under development and haven't been released yet by FinCEN. But those don't really affect the reporting companies, more the other parties.

So the purpose of this program today is to provide an update on the final rule issued by FinCEN and what it means for both the companies and individuals that need to comply with the terms of the CTA. I'll explain what we know from the final rule and the issues that require further clarification from FinCEN. Due to time limitations, we'll do so at a fairly high level, but we should get into enough detail to give attendees a pretty good idea of where the Corporate Transparency Act stands and what can be done to prepare for the new requirements. After all, it is not too early to begin thinking about how to comply.

So what I'm going to do today, I'll start with a background and the final rule, the effective dates of the CTA requirements, what are reporting companies and what are not reporting companies, who is a beneficial owner, who is a company applicant, what information has to be reported by reporting companies, what are the requirements for updates and correction reports, the use of a FinCEN identifier, and the implications of reporting violations. At the end, I hope to leave a couple of minutes for some Q&A. And if we can't get to your questions during the presentation, I'm sure we can respond at a later time.

So let's start with a background on the final rule. FinCEN, I mentioned them earlier, the Financial Crimes Enforcement Network, they're part of the U.S. Treasury Department, and they are tasked with enforcing certain laws to combat money laundering primarily. But they play an important role in national security and protecting the integrity of the financial system. And FinCEN is a big player in the Corporate Transparency Act. They're overall responsible for enforcing the Act. So I want to make sure you understand who FinCEN is.

The Corporate Transparency Act itself was enacted as part of the 2021 National Defense Authorization Act, originally vetoed by President Trump in 2020. The veto was overridden on January 1st, 2021, and it became law. The NDAA contained within it, buried within it the Corporate Transparency Act.

Now the Corporate Transparency Act places disclosure obligations on what are called reporting companies. They must submit a report to FinCEN with personal information for each beneficial owner and what the ACT calls an applicant.

A reporting company is any domestic corporation, limited liability company, or similar entity, or any foreign entity that registers to do business in the U.S. There are plenty of exceptions mainly because the Corporate Transparency Act is targeting smaller companies. So certain larger companies are going to be exempt.

Beneficial owner is defined in the Act to include any individual who owns 25% or exercises substantial control over the entity. And the applicant means the person that files the document to form or register a company.

Now, as I said, FinCEN was the department tasked with promulgating regulations to implement the Corporate Transparency Act. They issued an Advance Notice of Proposed Rulemaking in I believe it was April of 2021. They sought a lot of input from stakeholders and received plenty of comments.

From the Advance Notice, they drafted the Notice of Proposed Rulemaking, which was released 11 months ago, and this created a proposed rule for implementing the Corporate Transparency Act, 31 Code of Federal Regulations 1010.380. In response to the proposed rule, FinCEN received and reviewed more than 240 public comments, mostly from stakeholders in the legal industry, from CSC's industry registered agents, and things like that.

After analyzing the comments, FinCEN, on September 29th, released the final rule for reporting, only for reporting, and it substantially adopted the proposed rule, but it did make some changes and clarifications, which we'll go into today.

In addition to the reporting final rule, there will be more rule making coming down the pipe, and this goes to the secretary of state obligations under the CTA, certain matters of who has access to information, and perhaps other clarifications or modifications of the final rule.

When drafting the final rule, there are a few policies that FinCEN followed. For one, it does target smaller companies. It's aimed at companies that otherwise would not be regulated in a way that would require disclosure of beneficial owner information. And as a result, the exceptions to the reporting requirements are primarily companies that are already regulated or are so large that they otherwise aren't really an issue. It's the small companies that are targeted by the Corporate Transparency Act.

The rules also remain broad. They try to focus on the needs of law enforcement and balance, give law enforcement needs quite a bit of weight versus the burdens imposed on reporting companies and others. Although the final rule did take into account some of the input that the stakeholders provided, and they did limit the final rule a little bit in that respect, and I'll touch more on that a little bit.

Again, any exceptions to the reporting requirement remain fairly narrow and limited. This goes back to the great weight given to the interests of law enforcement in balancing the burdens.

So one of the big questions and probably the most important one is what is the effective date of the regulation? Well, here's the date to write down, January 1, 2024. This is when the regulation takes effect, and this will be when the reporting requirements take effect. And the reporting requirements as of that day will depend on whether the company is already existing or whether it is a newly formed company on or after that date.

As far as the reporting deadlines, we'll start with existing companies. These are companies that were formed before January 1, 2024, and the reporting requirements here will apply to domestic reporting companies that were formed before January 1, 2024, and to foreign reporting companies that first registered to do business in the U.S. prior to January 1, 2024. For these companies, they must file their initial report with FinCEN by January 1, 2025. In other words, they have one year in which to file the report. So between now and January 1, 2025, these reporting companies should be gathering the information they need and be prepared to submit the report sometime after January 1, 2024, but in no event any later than January 1, 2025.

For new reporting companies, which are any companies that are formed on or after January 1, 2024, if they're a domestic reporting company or for a foreign company that first registers to do business in the U.S. on or after January 1, 2024, then the reporting deadline is 30 calendar days after the earlier of either the date on which the reporting company receives actual notice that it has been created or that its creation has become effective, or the date on which a secretary of state or the equivalent office, depending on the jurisdiction, first provides public notice, such as by posting that information on its website, in the public registry.

This is a change from the proposed rule. The proposed rule said that the trigger date was the filing of the record. But because there can be delayed effective dates, there can be other issues that pop up and a question of whether in some jurisdictions if the reporting company would even know on what date they came into existence, for that reason FinCEN made this change and set the trigger date on notice.

New foreign reporting companies have a similar rule. They have to report within 30 calendar days after the registration becomes effective or the first public notice of the registration.

Some notes on the deadline. FinCEN tried to harmonize the deadlines. They were 14 calendar days for certain things under the proposed rule and longer for other events under the proposed rule, such as update reports and things.

Now FinCEN has harmonized everything so the deadlines, aside from existing reporting companies for the initial report, everything else will be 30 calendar days from the trigger event. So remember it's calendar days, not business days. And the trigger event for the initial report was clarified. It's the date on which, at least for a new entity, the date on which the public notice, either actual notice or public notice of the formation or registration occurs.

And for update reports or correction reports, these follow the same 30 calendar day rule. The deadline will be 30 calendar days after the date on which the change becomes known.

All right, on to reporting companies. Who has to report under the Corporate Transparency Act, or what companies have to report? Well, a reporting company is really any corporation, LLC, or similar entity that's created by filing a document with the secretary of state or a similar office within a state or Indian tribe. So in some jurisdictions, it's not the secretary of state that forms entities. It might be the department of financial institutions or department of . . . some other department anyway. If it is an entity that is formed under foreign law, it's an entity that is registered to do business in the U.S. by filing a document with the secretary of state or similar office.

So the concept, though, of a corporation, LLC, or similar entity, a similar entity was left to FinCEN rule as to what constitutes a similar entity, and it certainly includes any entity formed by the filing of a document with a state or an American Indian tribe. However, FinCEN declined to do any further definition of "similar entity" at this time due to the wide variety of formation procedures and practices and laws in the different states. FinCEN may issue further guidance, but for right now it's an open, broad interpretation as to what constitutes a similar entity.

As I said, it is possible that FinCEN will issue some clarifications or other guidance prior to the effective date of the final rule. We'll have to wait and see on that. For right now, I think it would be a good idea to err on the side of caution, and if it does appear in any way similar to the defined reporting company, it may be a good idea to file a report.

As I mentioned, there are a number of exemptions to the definition of reporting company or what companies have to report under the CTA. The Act itself provides 23 specific exclusions. Mostly these are regulated businesses, such as financial institutions, which already have to report ownership information, companies that are subject to other forms of state or federal regulation, like public companies, for example, are subject to the Securities and Exchange Commission, public utilities subject to various state utility regulators and federal regulators, and as a result these entities really don't pose any questions for FinCEN and generally aren't used for money laundering.

Another exemption is for large operating companies. A large operating company is an entity that has more than 20 employees, has filed a U.S. income tax return for the previous year and has at least $5 million in gross receipts for that year. Plus it has to have an operating presence at a physical office in the U.S. A newly formed entity cannot be or cannot fall within the large operating company exemption because it has to have filed a tax return for the previous year. So it will take at least one year for an operating company to qualify for an exemption.

There are some other exemptions in there, or at least I should say there's the power for FinCEN to create other exemptions. But FinCEN decided not to exempt any other entities at this time beyond those that are specifically exempted by the rule.

So bottom line, the exempted identities are those that are already regulated, typically large entities, publicly-traded companies, utilities, financial companies that are regulated, and so forth or large operating companies. There aren't going to be any additional exceptions or exemptions in the foreseeable future.

I do want to talk a little bit about the large operating company exemption. It must have 20 or more full-time employees. The Corporate Transparency Act did not clarify who is an employee, so FinCEN used the IRS definition for full-time employee, and that boils down to about 30 hours a week or 130 hours a month. It has to have $5 million in gross receipts on its tax return. This can be a lump sum of the gross receipts from all types of U.S. income and can include different companies within the entity. It has to have an operating presence at a physical office in the U.S., and that means a physical office, and it can't be a residence or shared space. There's limitation on that for affiliates can share the space.

So a reporting company is going to be anything that doesn't fall within those exemptions. That's going to be many, many types of small businesses.

Well, who is a beneficial owner, because that's really what this Act is about is reporting beneficial owner information. Well, a beneficial owner is defined under the Act as being an individual who either exercises substantial control over the entity or owns or controls at least 25% of the entity. The Act did not define what constitutes substantial control, and it didn't define what constitutes or at least how to calculate 25% ownership, and so that fell on FinCEN to determine by regulation.

When it comes to substantial control, it does include certain factors, such as service as a senior officer of the reporting company. A president of the reporting company, for example, would most likely have to be considered a beneficial owner. If the party has authority over appointment or removal of senior officers or board members, for example. If they exercise substantial influence on matters affecting the company. And really any other form of substantial control. It is kind of a catch-all provision. So it is broadly defined.

So it's broadly drafted. It intended to bring a wide variety of people that exercise control. It can be a direct control. It can be indirect control. Many companies will have more than one person that might exercise substantial control. Although it's not intended to include ordinary, day-to-day management decisions. But it's intended to be at a fairly high level.

As far as calculating the 25% ownership, the regulations define the ownership interest really anybody that has any type of capital or controls the capital or has the ability to convert other interests into capital or even a profit interest. Anything along that line can be used to calculate the 25% ownership. And the calculation is based on an aggregate of all the different interests of an individual in the particular company. So if it all adds up, both equity and profit rights and options and things like that, it can add up to 25%, then that individual has to be reported as a beneficial owner.

There are some exclusions from the definition of beneficial owner. A minor child if the parent or guardian is reported as a beneficial owner. The nominee of a beneficial owner acting on behalf of the other person. An employee who acts solely in the capacity as an employee and doesn't receive a percentage of the profit or something like that, their economic benefit is really just wages. Somebody who gets a right through a right of inheritance, if that's their only issue or their only interest, it really is excluded from the definition of beneficial owner until at some point when they do receive the inheritance and may become a beneficial owner. And a creditor. A creditor is excluded from the definition of beneficial owner unless that creditor is exercising substantial control in a way or gains 25% equity in the entity, in which case the creditor, if the creditor is an individual may be a beneficial owner. But generally somebody who's just exercising creditor's rights in foreclosure is not going to be a beneficial owner.

Company applicant is another party to be aware of because the CTA requires reporting of company applicant information. Actually, the CTA required reporting of applicant information, which is defined as the person that directly filed the formation or registration documents for a reporting company. So it's the person that files an application to form the LLC or corporation or similar entity or who applies to register the entity if it's a foreign reporting company.

Now the final rule stuck with the FinCEN regulatory term of "company applicant." In the regulations and the proposed regulations, FinCEN developed the concept of company applicant, which includes anybody originally included. Anybody in the filing chain would be an applicant or a company applicant.

However, FinCEN revised that. So the final rule uses the term "company applicant," and that includes for a domestic reporting company an individual who directly files the formation document to create the entity. For a foreign reporting company, it's the individual who directly files the document to first register the foreign company. And regardless of whether it's a domestic or foreign reporting company, the term also includes the individual who is primarily responsible for directing or controlling the filing that's if there's more than one individual involved in the filing of the document. Now sometimes the individual who directly files will be the same person as the party that directed and controlled the filing, but sometimes that won't be the case. It would be a different party.

So let's take a look at the reporting requirements. What is really required of a reporting company?

First of all, how does a report get filed with FinCEN? Well, FinCEN right now expects that the reports will be submitted electronically through an online portal. They don't have the portal built yet, and it's quite possible it won't even be done by the effective date of January 1, 2024. If that's the case, they'll have a form. They'll have alternative submission methods rather than requiring that the record be filed electronically.

One thing of concern for companies like CSC and others is whether or not we can submit on behalf of our customers to better incorporate the filing into the formation process or registration process. FinCEN is still working on that. We don't know for sure, but they are holding out the possibility that we can do batch submissions on behalf of customers through a B2B type of interface, but nothing is certain on that yet.

As far as the report content, there's certain information on the reporting company, certain information on individual beneficial owners, and certain information required for individual company applicants. Those three items of information will have to be in the report.

The report will be maintained, the reported information I should say will be maintained in the Beneficial Ownership Secure System or BOSS is what FinCEN calls it. It's still under development. They are working on it. There's still more to learn about how this system will work, but it is intended to be securely stored within the BOSS system.

So what information does a company have to report about itself as part of this process? Well, for each reporting company, the company will have to report the full legal name for the reporting company. This was a clarification from the final rule, which just said the name of the reporting company. In addition to that, all trade names, also known as DBAs or fictitious names, business names, these have to be reported. And that's the case even if the name isn't registered. If they're doing business under other names, they need to report those names as well.

They need to report the street address of the principal place of business for a domestic reporting company. For a foreign reporting company, it's a principal place of business in the U.S.

They have to report the jurisdiction of formation, the state or the tribal jurisdiction in which the entity was formed. And the entity has to report its taxpayer identification number. It's the tax number that's issued to the entity.

It is possible that newly formed or registered companies won't have a tax identification number. However, that's not an excuse for failure to report it. The original deadline was going to be 14 days from filing. FinCEN modified that to 30 calendar days from the point at which public or from when the company has notice of its creation or the filing office provides public notice. And FinCEN felt because of the added time in there and the simplicity or the ease of getting a tax identification number that it would not be unduly burdensome for the newly formed reporting company to get a TIN before it files its report within that 30 days. So they will have to report the tax identification number. Foreign reporting companies that don't have a U.S. tax identification number will be able to report a foreign tax identification number.

When it comes to the street address for the reporting company, if it's a domestic reporting company, it has to be the principal place of business in the United States, and that'll be the street address of the principal place of business. If it's a foreign reporting company, it has to be the street address of the primary location in the U.S. where the reporting company conducts business, and that would be the case if whatever the reporting company was had its principal place of business outside the U.S., even a U.S. reporting company.

There are some things we know that will not be sufficient as a reporting company's street address. A P.O. Box does not work. The address of the registered agent is not sufficient. The address of any other third party is not going to be sufficient for this purpose.

This creates some ambiguities, and FinCEN is likely to issue further clarifications or frequently asked questions to address issues like internet companies that have no physical address. There's a growing trend out there. More states are introducing legislation to allow the formation, for example, of distributed autonomous organizations, which can be an LLC, but it has no physical existence, it has no address. It exists nowhere but on the internet. So FinCEN has to be able to address that. We'll see what they do.

Also a new formation may lack a business address initially. FinCEN will probably clarify what to do there.

And then there may be cases where the principal place of business for a reporting company simply isn't easy to determine. It may not stand out as where the principal place of business is. For example, a chain of small stores that doesn't have a central office overseeing all of them, which one is the principal office? The principal place of business, that might be hard to determine.

The reporting company also has to provide beneficial owner information for each beneficial owner. And as I mentioned, that includes 25% ownership or substantial control. So there can be multiple beneficial owners certainly. So for each beneficial owner, the reporting company must provide the full legal name of the individual, the date of birth for the individual, a residential street address for the individual, and this was a change from the original proposed rule, which called for the tax domicile address. Now it just says the address of the principal residence. A unique identifying number for the individual from an approved government document that's been issued to the individual. These include things like driver's licenses and so forth. I'll go into that a little more detail in a moment. And in addition to the identifying number, the reporting company will have to provide an image of the document that provided that identifying number, and that has to be an image with a photo and it has to be provided legibly. It has to be readable so that you can identify the individual from the photograph submitted. So it should be a fairly high-quality scan.

As far as the acceptable sources of the unique identifier, there are four that are specified in the regulations: a non-expired passport issued by the United States for the individual; a non-expired identification issued by a state, local government, or Indian tribe; a non-expired driver's license issued to the individual by a state; or a non-expired passport issued by a foreign government if the individual doesn't have any of the previous three types of identification.

When it comes to the company applicant, for reporting companies that exist before the effective date, the initial report does not need to provide company applicant information. This was a huge change because in the proposed rule, the reporting company would have to provide the same information for each company applicant that they would have to provide for a beneficial owner, and considering that the companies may have been formed 20 years ago, 30 years ago, and there may be half a dozen company applicants involved, and they would have to track each one of these down and force them to turn over their sensitive personal information, it was just viewed as a bit too much. And so FinCEN balanced the value of that information versus the burden it imposed on the reporting company and decided that there really wasn't any value there. So it isn't necessary for reporting companies that were already in existence prior to the effective date to report company applicant information. So that is a big change, and it does lessen the burden on reporting companies.

For any entity that's formed or registered initially on or after the effective date, January 1, 2024, the reporting company must provide the company applicant information in the initial report. The good news is that once it's provided, reporting companies don't need to update the company applicant information if it later changes, like they would if beneficial owner information changed. However, if the reporting company provided incorrect company applicant information at the time of the initial report, the reporting company would be under an obligation to make corrections.

As far as the required information for company applicant, it is slightly different in some cases from beneficial owner information. It does require the full legal name of the individual, date of birth of the individual, the address of the individual, the unique identifier, and a copy of the document that provided the unique identifier, which are the same documents as for a beneficial owner. The difference, it has to do with the address of the company applicant. If a company applicant is in the business of filing formation or registration documents, then the street address can be the street address of the business that's reported. However, all the other requirements are the same as for a beneficial owner. And in fact, for a company applicant, if they're not engaged in the business of filing formation documents, then they have to provide the residential street address, just like they would for a beneficial owner.

Some reporting issues that arise with company applicants, some good news is that unlike the proposed rules, which might have considered every individual in the chain of filing to be a company applicant, the final rule says that a reporting company has no more than two company applicants. That will be the person who filed the formation or registration documents and, if it is a different person, the person who directed or controlled the filing of the documents. So that's the good news. No more than two company applicants.

One big issue that will come up for company applicants and this will affect probably employees of service companies, like CSC, and paralegals, maybe legal couriers, and things like that is that if FinCEN continues to assert that the individual employee is the one who files the documents and therefore is the company applicant, then these employees will have a choice. They can either provide their sensitive personal information to every reporting company for which they file a document, even though they don't have a direct relationship. It might be through an attorney that the whole process began. But bottom line, they lose control of their personal information, or they can obtain a FinCEN identifier, which I'll talk about in a minute, and that identifier will allow them to just provide a number to the reporting company. But it will place them under a lifetime obligation to update their information within 30 days or face the penalties for reporting violations. So these aren't very good choices unfortunately.

And FinCEN said they did compromise by allowing company applicants to provide a business address rather than a residential address to protect their personal information. However, remember that the company applicant has to turn over a copy of their identification document, which presumably would include that residential address.

So there's still some issues here. FinCEN I don't think really balanced the burden imposed on the company applicant with the value of information that a company applicant can provide. We're hoping for more clarification on that in the near future.

The report must be certified as being true, correct, and complete. This language came from FinCEN. There are certifications that FinCEN requires under other laws. So FinCEN harmonized the certification language with these other laws. So the individual that submits the report to FinCEN must certify that the information is true, correct, and complete, and this applies to any report, including an update report or a correction report submitted to FinCEN.

Now, well, this raises the question of what due diligence is required by the certifying party. Are they on the hook if the information doesn't turn out to be correct? Well, the final rule does assume that an individual will file the report acting as an agent to the reporting company. The Act and the final rule both place the responsibility on the reporting company, beneficial owners, and applicants to make sure that the information provided is correct, not necessarily the agent that is certifying the report, who may not have direct knowledge of that. They're really just certifying that what the company provides is true, correct, and complete, and as a result, the reporting company is the one that is ultimately responsible for the certified information. If it doesn't turn out to be correct, it's the reporting company that will pay the price on that.

Now after a company has made its initial report, it will probably be a common thing for the reported information to change, and the Corporate Transparency Act does make provision for that. So FinCEN does require updates to reported information if any of the reported information changes, if there's a change in beneficial owners, a change in beneficial owner address, a change in really anything having to do with the company or a beneficial owner. And in such cases, the reporting company must update the information, if it changes from prior reports, within 30 calendar days of a change with respect to any of the information, with some exceptions. As previously mentioned, a reporting company does not have to update the company applicant information if it was correct at the time of filing. If the image of the identification document changes but none of the contents of it changed, in other words, the name, address, and identifier in that photo ID that's submitted FinCEN, if those don't change, when the holder of the ID is issued a new one, that's not a change as far as FinCEN is concerned. And likewise, if a company terminates or dissolves, no update report is required.

So what kinds of changes are going to require an updated report? Well, the identity of a beneficial owner. If a beneficial owner is no longer a beneficial owner or somebody becomes a beneficial owner or exercises substantial control, that would have to be reported. Any of the information for a particular beneficial owner, like street address, identification document number, their date of birth probably won't change, a change of name, all those things would have to be reported. Or let's say a reporting company that has previously filed reports now meets the qualifications for an exemption, well, in that case, that fact would have to be reported as well.

There are some special issues to be aware of with update reports. The timing of a change with respect to a deceased beneficial owner is covered by the rule. The change is deemed to occur, the proposed rule said it was deemed to occur when the estate of a deceased beneficial owner is settled, and the final rule adopted that approach. So it must be filed if the deceased individual is a beneficial owner by owner of property interests or other rights subject to transfer on death and not alone because the deceased owned or controlled 25% of the ownership interests.

The update report may still be required following the date of death if a beneficial owner causes another person to assume substantial control. But otherwise, the time is when the estate is settled.

Another issue with update reports is what if there are multiple changes? All changes have to be reported, even if one supersedes another. They want to keep track of the chain of changes. And again, the deadline for this is within 30 calendar days after the information changes. So it is important to be prompt in reporting any changes.

If the initial information reported to FinCEN is not correct at the time of filing, the Act requires a correction or a corrected report to be submitted. The Act does give a safe harbor for up to 90 days. However, FinCEN has that 30-day window, and FinCEN does have authority to change the deadlines from the Act.

So any person that wants to submit a corrected report needs to do so. The corrected report has to contain information to make the report complete and accurate, and again it has to be filed within 30 calendar days after the reporting company becomes aware of the error.

I mentioned earlier the FinCEN identifier. This is a number issued by FinCEN to a beneficial owner or a company applicant or even a reporting company to simplify the reporting process. For example, a company applicant who files documents regularly on behalf of different companies can get a FinCEN identifier, and then instead of providing their sensitive personal information each time, they simply provide the FinCEN identifier and FinCEN will have the necessary information in their own database because the individual applying for the identifier needs to provide all the information that they would have to provide if they were a beneficial owner. It's just that they provide it directly to FinCEN, and FinCEN issues them the identifier, and then they provide that to the reporting company.

The application process is still in the works. FinCEN doesn't have the final details available yet. They will come up with the procedures, provide some frequently asked questions and other guidance not too far in the future.

There are some limitations in this. A FinCEN identifier cannot be issued to a company to cover all its employees, at least not as the regulations currently stand. Also the FinCEN identifier is specific to the individual or entity who issued it or to whom it was issued. If the person shares their FinCEN ID number, that is a reporting violation and could subject the person to both civil and criminal penalties if they allow another person to use it.

Any individual or reporting company can only obtain one FinCEN identifier, and, as I mentioned, there are some issues with the FinCEN identifier. I did mention that you can't allow other people to use it because of the civil and criminal penalties. A big one is that the holder of a FinCEN identifier must keep that information updated. If they have a change, they've got to report it within 30 days. That is a lifelong obligation. I mean there simply isn't a sunset provision on application for a FinCEN identifier. Once it's issued, the holder has to provide updates or they're making a reporting violation and could be subject to civil and criminal penalties.

Now FinCEN is aware of this issue and understands that it could be a problem, and they may issue some clarification or guidance on long-term obligations of a FinCEN ID holder. So we'll wait and see what happens with that. More details to come.

As far as reporting violations go, they are severe. The regulations do clarify who is going to be subject to reporting penalties, and that's any person who controls or directs another to give false or incorrect information or who does give false or incorrect information or fails to report.

Both individuals and reporting companies can be subject to penalties. So if a beneficial owner or company applicant refused to provide information to a reporting company, they could be subject to civil and criminal penalties as well as the reporting company. And so this can be used as a bit of leverage to make otherwise reluctant individuals comply, like the beneficial owners or more likely the company applicants who may be a little reluctant to turn over their sensitive personal information to a reporting company with which they have no direct connection. Again, FinCEN we hope will issue some clarifications on this.

So in a nutshell those are the reporting requirements of the final rule issued by FinCEN or the Corporate Transparency Act, and they're final. They're close enough that it is time to start preparing, and you can begin to, I guess, read those rules and understand that they probably are not going to change a whole lot between now and January 1, 2024.