The Corporate Transparency Act (the “CTA”) is part of the Anti-Money Laundering Act of 2020, which in turn is part of the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”). The CTA’s purpose is to implement uniform federal ownership disclosure for every company in the United States.

Owners of licensed commercial cannabis businesses are no strangers to ownership disclosure – California regulations require owners and financial interest holders to disclose basic personal information to state agencies for on a yearly basis. However, new laws in effect will require all businesses, cannabis or not, to disclose their ownership to the federal government. The Financial Crimes Enforcement Network (“FinCEN”) is finalizing regulations that will create a database of the owners of every company registered to do business in the United States.  This law is the first of its kind. Business owners may soon find themselves announcing their presence in the cannabis market to the federal government, despite the fact that a federal legalization has not yet caught up with state legal businesses. 

The CTA and these proposed regulations represent the culmination of years of efforts by Congress, the Department of the Treasury (Treasury), other national security agencies, law enforcement, and other stakeholders to bolster the United States’ corporate transparency framework and to address deficiencies in BOI reporting noted by the Financial Action Task Force (FATF), Congress, law enforcement, and others.” 

Source: https://www.federalregister.gov/documents/2021/12/08/2021-26548/beneficial-ownership-information-reporting-requirements

Implementation Timeline

The CTA became effective on January 1, 2021, but FinCEN is still in the process of publishing final regulations. The first component, a Notice of Proposed Rule Making, was published on December 8, 2021. In that Notice, FinCEN indicated that they will be splitting their proposed regulations into three separate parts:

  1. Rule making to implement the beneficial ownership information reporting requirements;
  2. To implement the statute’s protocols for access to and disclosure of beneficial ownership information;
  3. To revise the existing CDD Rule, consistent with the requirements of section 6403(d) of the CTA.

Reporting Requirements

All “Reporting Companies” need to file a report with FinCEN disclosing ownership information of the “Beneficial Owners” and “Company Applicants” of the company.

  • Reporting Companies are defined as:
    • All domestic U.S. entities
    • Any foreign entities registered to do business in the U.S.
  • Beneficial Owners are defined as:
    • Someone who exerts “substantial control” over the reporting company,
      OR
    • Someone who owns at least 25% ownership interest in the Reporting Company.
    • Creditors are excluded from the definition of Beneficial Owner (section III(E) of the Notice)
  • Company Applicants are defined as:
    • The individual who files the document that forms the entity.
  • A Reporting Company must disclose the following information for each Beneficial Owner and Company Applicant:
    • legal name;
    • residence or business address;
    • date of birth;
    • a unique identifying number from an identification document such as a passport.
      • If this is not available, registration through FinCEN will be available and yield a FinCEN identification number.
  • Such information on Beneficial Owners and Company Applicants is referred to as “beneficial ownership information” or BOI in the Notice.

Deadlines for Reporting

  • Deadline for initial reports:
    • Existing reporting companies have one year from the effective date of the final regulations.
    • Future reporting companies have 14 calendar days from creation/registration.
  • Deadline for reports to change information:
    • 30 calendar days from effective date of the change.
    • If the reason for filing is to correct a mistake, the report is due within 14 calendar days the mistake became known.

Exceptions

There are 23 types of entities which are excluded from the definition of Reporting Company.  However most exceptions are for entities that are already firmly regulated federally: e.g. securities issuers, banks, credit unions, insurance companies, etc.  Some cannabis companies may fall into exceptions No. xxiii, “Inactive Entities”, and No. xxi, “Large Operating Companies”

  • Large Operating Companies are defined as entities that:
    • (1) Employ more than 20 employees on a full-time basis in the US
      AND
    • (2) Have more than $5,000,000 in gross receipts or sales in the aggregate (and can demonstrate this with a federal income tax return)
      AND
    • (3) Have a physical office in the US
  • Additional exceptions are not expected in future regulations.  FinCEN plans to adopt the statutory exceptions verbatim.

 

[To find this section in the regulations, CTRL+F “Exemptions. Notwithstanding paragraph (c)(1) of this section, the term “reporting company” does not include:” to find the proposed language] 

Blog by Christopher Peel, March 4, 2022

 

 

 

 

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