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The Corporate Transparency Act – December 2023 Update

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The Corporate Transparency Act (CTA) legislation goes into effect on January 1, 2024 and introduces beneficial ownership reporting requirements for new and existing companies. The new CTA reporting requirements apply to corporations, limited liability companies, and other entities that fall within the CTA’s definition of “reporting company.”

Join CSC Associate General Counsel Paul Hodnefield for a webinar that will offer a high-level overview of the CTA as well as updates on what is known about the act, and new information regarding reporting obligations.

Webinar transcript

Disclaimer: Please be advised that this recorded webinar has been edited from its original format, which may have included a product demo. To set up a live demo or to request more information, please complete the form to the right. Or if you are currently not on CSC Global, there is a link to the website in the description of this video. Thank you.

Annie: Hello, everyone, and welcome to today's webinar, "The Corporate Transparency Act, December 2023 Update." So my name is Annie Triboletti, and I'll be your moderator for today.

Joining us today are two of CSC's experts. First we have Paul Hodnefield, the associate general counsel, to provide an update on the Corporate Transparency Act. And we also have David Jefferis, Senior Director of Product Management for Global Compliance, to speak to how CSC can help with our new CTA Beneficial Owner Information Filing Service.

So with that, I would like to welcome Paul and David.

Paul: Thank you, Annie. This is Paul. And as all of you on the program today are aware, the Corporate Transparency Act is about to take effect in exactly 22 days. And this act will have a huge impact on the company formation and the compliance process for certain companies, not every company. And because it affects so many companies however, there's at least 32 million and probably more that will be directly impacted by this act, it is important to understand how it works and what resources are available and things like that. So that's what I'm going to do today.

I want to point out there's a huge amount of information that we're going to go through here today. So we'll move through it very quickly. I have it pretty well laid out on the slides, and my understanding is that everybody will get a copy if you want it.

So what specifically I'm going to go today through today I'm going to give an overview of the Corporate Transparency Act and then go into more detail on it. I'll explain what companies have to report, what the report contents consist of, the update and correction of previously submitted reports, what a FinCEN identifier is and how it's used, who has access to the data that's submitted for beneficial ownership, and what happens if a company or individuals subject to the act fail to report as required, also what happens if there's an unauthorized disclosure or misuse of the information that is sent as part of the reporting. I'll wrap up my portion of the presentation with just a touch on what resources are available primarily from FinCEN. And then I'll pass it over to David for more information on CSC's solutions for this.

But we'll go ahead and begin with an overview of the Corporate Transparency Act. What the Corporate Transparency Act is in essence is a new law that places for the first time disclosure obligations on certain companies that are called reporting companies. This is the first time there's been a national standard for disclosure of beneficial ownership information. So what it does is it places an obligation on companies that are subject to the act, also known as reporting companies, to submit a report to FinCEN with certain information about each beneficial owner and also company applicants. And I'll go into more detail about who is a beneficial owner and who is a company applicant very shortly.

First of all, what is a reporting company? Well, generally it's any domestic corporation, limited liability, or similar entity, unless it qualifies for an exemption. It also includes any foreign company that registers to do business in the U.S., again unless it's subject to an exemption. There are numerous exemptions, there's 23 of them, that apply primarily to companies that are already regulated at the state and federal level. I'll go into a little more detail here as we proceed through the presentation.

A beneficial owner, the act defines a beneficial owner to include any individual who has 25% ownership. When you consider all the different types of ownership and then add them together, if it adds up to 25% or more, then that person is a beneficial owner. It also includes anyone who exercises substantial control over the entity. The regulations do provide for what constitutes substantial control. But it gives examples, but it doesn't limit substantial control to that.

Then there's the company applicant. The company applicant concept, it was actually the concept of an applicant that was included in the statute, and the regulations further refine it to a company applicant. It means two different types of people. It means the person that directly files the document to form or register the company and, if it's a different person, the person that directed or caused the record to be filed. Again, I'll come back to these in a little more detail.

Now throughout this presentation I'm going to be talking about an organization known as FinCEN, and I think it's important to explain what FinCEN is. It's the Financial Crimes Enforcement Network, which is a department within the U.S. Department of Treasury. FinCEN exists to safeguard the financial system from bad actors. And to that end, they're there to combat money laundering and to promote national security by looking at how money moves through the system and prevent the U.S. financial system from being used to finance bad actors, such as terrorism, drugs, and that type of thing.

Now FinCEN, in the Corporate Transparency Act, was given responsibility for implementation of the act and managing the act. So with that, FinCEN was given the responsibility to promulgate the regulations, for implementation and maintenance of the act. And then also FinCEN is responsible for maintaining and safeguarding the information that's submitted under the act, in other words everything that goes into the beneficial ownership database.


Now FinCEN, as they drafted the regulations, there were certain policies that they followed either expressly or implicitly. One of them is that it became clear in reviewing the regulations that FinCEN drafted them with a bias in allocating the burdens between the parties involved in favor of law enforcement. So basically law enforcement was given great weight in deciding what burdens to impose on those who are subject to the act. And the rules were drafted rather broadly to bring as many companies and beneficial owners as possible within the scope of the act. And any exceptions to the act were very narrowly limited, and even where they had authority to expand exceptions, they kept it very narrow.

FinCEN's regulatory policies are designed to target small companies primarily, specifically companies that are not already subject to beneficial owner reporting requirements or other regulation. Whereas certain companies like a public utility is heavily regulated and all the information regarding its owners is pretty well public record, smaller companies, like a small family-held landscaping company, may not be subject to any reporting violations or any reporting obligations I should say. And that's where FinCEN is trying to get to is to get to these small companies where that might be easier to use for money laundering purposes. And as a result, the exceptions to the reporting requirements generally apply to large companies, those that are already regulated and those that are large enough that they aren't seen as a problem.

Another policy that FinCEN used as it drafted the regulations is that the responsibility for compliance with the reporting obligations is solely that of the reporting company. So it's the reporting company that will bear the brunt of any action due to incorrect or incomplete information that's provided. It may also apply to individuals involved, or at least I should say some of the penalties could apply to individuals, but the reporting company is the one that FinCEN will focus on if they don't fully comply with the requirements. So it's the reporting company that's responsible for submitting the report and the reporting company that's responsible for gathering the personal information of each beneficial owner and applicant.

How is the information going to be submitted, and where is it going to be stored? Just to make you aware upfront, FinCEN is building a new database. Hopefully it's done by now and in the final stages of testing. Last I checked a month or so ago, it still wasn't ready for full testing, but it was moving towards completion. And, in fact, FinCEN has been focusing all its efforts on getting this new database and the interface ready for the effective date. So they call this system for receiving and storing the beneficial owner information the Beneficial Owner Secure System or BOSS. So you may hear that acronym from time to time.

All of the reports, everything will be submitted online. It will be submitted through the FinCEN website. It's not ready yet, and it might not be ready on day one, but there would be third-party filing allowed in this system. How soon that'll become available we're still waiting for FinCEN to get us the information necessary to build the interface for direct filing on behalf of reporting companies by service companies like CSC. But it is in the works. We don't know how soon that'll be.

One thing we do know is that no reports will be submitted before January 1, 2024. There's no pre-filing allowed. The system will not be up and running before then. It will not be available. But beginning on January 1, 2024, we've been assured that FinCEN will have that system up and running, ready to go.

January 1st, 2024 is the big date. That is the effective date. So be sure to write this down. It is exactly 22 days away as of today, and this is what's going to trigger the reporting deadlines. So beginning on January 1st, the deadlines applicable to the Corporate Transparency Act will go into effect.

So I'm going to spend some time here and review the applicable deadlines, and there were some new developments within the last couple of weeks. FinCEN has released over the last couple of Tuesdays updated information, and one of them was to report that a new rule was finalized that extends the reporting requirements for companies formed during 2024. So I'll explain that.

It's a temporary rule. And what that is that the temporary rule applies to domestic reporting companies formed between January 1 and December 31, 2024. So in other words, any new company formed during 2024 will be subject to the temporary rule. And any foreign reporting company that first registers in the U.S. between January 1 and December 31st, in other words during 2024, will also be subject to the new deadlines of that temporary rule.

So the new temporary rule for 2024 is that any newly formed companies during 2024 have 90 days to submit their initial report to FinCEN. And the calculation of that 90 days is based on either one of two things — the time the company receives actual notice of its creation or the date on which the secretary of state or equivalent office first provides public notice of the creation, such as when the entity first shows up in the public database maintained by a secretary of state. And so it's 90 days from that, not necessarily 90 days from the date the document is submitted to create the entity.

For foreign reporting companies that initially register in the U.S. during 2024, again the initial report must be filed within 90 calendar days of the date the company receives actual notice that it has been registered to do business or the date on which secretary of state again provides the first public notice that the company is registered.

So this rule will be in effect for entities formed during 2024. Beginning with entities that are formed on or after January 1, 2025 or first registered to do business, if it's a foreign reporting company, on or after January 1, 2025, the rules are different. For a new domestic reporting company formed on or after January 1, 2025, the initial report must be filed within 30 days after the company receives notice of creation or the secretary of state provides the first public notice of the creation, such as through the website. The same thing with a foreign reporting company that initially registers in the U.S. to do business, the initial report to FinCEN must be filed within 30 calendar days after the company receives actual notice of its registration or the date on which secretary of state or similar office provides the first public notice of that registration.

So that's for newly formed companies. What about all those companies that were formed up through and including December 31st of this year? Anything that was formed on or before December 31st of 2023 will have a different reporting deadline. And that is if it was a domestic reporting company formed before January 1, 2024, or a foreign reporting company registered prior to January 1, 2024, these entities will have up until January 1, 2025. So there's one year. It's not a 90-day rule. It's not a 30-day rule. There's a whole year. So it would be a good idea for existing reporting companies, be it a foreign or domestic reporting company, to begin gathering its information as soon as possible and be prepared to submit it to FinCEN sometime during 2024, you don't want to wait till the last day, and get the get the information submitted sometime during 2024.

So those are the deadlines. Now I want to look at what are reporting companies. In other words, what companies have to report under the Corporate Transparency Act? Well, the act itself defines a "reporting company" to mean a corporation, LLC, or similar entity. And between the act and the regulations, it means any entity that's created by filing a document with the secretary of state or similar office, or an entity formed under the law of a foreign country and registered to do business in the U.S. by filing a document with the secretary of state or similar office.

Now what constitutes a similar entity, that was left to FinCEN to determine. And when it comes to a similar entity, FinCEN has said again it includes any entity formed by filing a document with a state or Indian tribe. But they didn't further define it or provide a list of types of entities that would fall within the similar entity catchall provision. So there's a bit of a gray area here.

Now you will notice that filing a document with the secretary of state or a similar office to form the entity sounds somewhat similar to another concept under the Uniform Commercial Code. UCC Article 9 has the concept of a registered organization, which includes corporations, LLCs, or any other entity that comes into existence by the filing of a public organic record with a state or the United States. Or there are some other types of entities that would be registered organizations, such as those formed by the issuance of a charter or by legislation. The concept is similar, but it is not identical. So do not confuse the concept of a reporting company with the concept of a registered organization under Article 9. Article 9 may be broader as to what constitutes a registered organization and what constitutes a reporting company under the CTA.

One of the reasons FinCEN didn't go any further in determining what is a similar entity is because there's a difference from state to state as to the types of entities that are allowed to be formed in the state and state law is not uniform regarding formation practices and neither are the regulations state to state. So FinCEN didn't want to go further with this, and, as a result, it remains as somewhat of a gray area. And if a company that could be a reporting company has any question about this, they really need to consult with legal counsel to determine whether there might be a similar entity that has to report.

Now not every corporation, LLC, or other company formed by filing a document with the secretary of state or equivalent office is going to be a reporting company, and that's because there are 23 exemptions to the definition of "reporting company" that are provided in the act. And I'm not going to run through every one of these 23. They're very specific in some cases. But I want to talk generally about these.

For the most part, it applies to regulated businesses. These are entities that are already subject to reporting obligations. These would include financial institutions that are subject to OCC or state banking regulation. Companies that are subject to regulation by the SEC already, publicly traded companies for example. Public utilities, they're generally subject to all sorts of regulation at the state and federal level. There's others too. Insurance companies are generally subject to state regulation. And any others that might fall into state regulation may fall within these exemptions. But there are plenty of companies that do not.

But one of the big exemptions that we'll hear more about has to do with large operating companies. These are not necessarily subject to regulation as the previous companies that I've talked about. But large operating companies apparently Congress and FinCEN have determined do not pose as much of a threat as smaller companies. So any entity that has more than 20 employees and has U.S. income tax receipts for the previous year of $5 million and has an operating presence at a physical office in the U.S. Now I want to spend a little more time on reporting companies to clarify what these requirements are because it's not always as clear.

Now there are some other exemptions that FinCEN was authorized to make if they wanted to, but FinCEN decided not to exclude any other types of entities at this time anyway. As time progresses and FinCEN builds more knowledge about practices in the industry and so forth, it's possible there could be more exemptions. But for now FinCEN decided not to expand it beyond those specifically provided for by Congress.

Getting back to the large operating company exemption, because there'll be a lot of a lot of companies that may be able to claim this exemption, to get into the specifics, it's got to have 20 or more full-time employees, but the act did not clarify what constitutes an "employee." And FinCEN had to take a look at how to go about determining what constitutes an employee. And what they did is they looked to the IRS definition of a full-time employee and adopted that as the definition of full-time employee for purposes of the act. So when counting employees, FinCEN is going to look at counting those who work 30 hours per week or 130 hours per month as a full-time employee. So that's how to calculate 20 or more full-time employees.

Five million dollars in gross receipts means gross receipts from U.S. income. So at least $5 million has to be reported as gross receipts or sales on the entity's applicable IRS form, and that's excluding amounts from sources outside of the United States.

And then, finally, it has to have an operating presence at a physical office within the U.S. So it has to be a physical office owned or leased by the company. It cannot be a residence. It cannot be a shared space, such as an office sharing arrangement. It cannot be a mailbox drop or something like that. It has to be a physical operating presence. And there are some exceptions to the shared space. Affiliates can share the same space. But it can't be a residence and it can't be a shared office space.

You may notice that there could be some issues here for certain types of entities related to new technology, such as, for example, if there was a distributed autonomous organization, that probably wouldn't meet the full-time employee requirement. But there may be similar types of entities that are not required to have a physical presence, but might have 20 employees and $5 million in gross receipts. And FinCEN is aware of the issue and may issue further guidance on how to deal with that in the future.

So those are the exemptions. For those companies that will have to report under the Corporate Transparency Act, the next question is: What do they have to report? What are the contents required for the report? And that's what I'm going to go into next.

First of all, FinCEN has divided it up into really three types of information that have to be reported — information regarding the company itself, information regarding the company's beneficial owners, and finally information regarding the company applicants. So I'll address the company information separately and then address the beneficial owners and company applicants together because it's similar information with just slight differences.

First of all, what information does the reporting company have to report for itself? Well, under the Corporate Transparency Act, the company has to report its full legal name. In addition to the full legal name, it has to report all trade names, fictitious names, or DBAs, any other name that the company has used to do business regardless of whether that name is registered with a state. So any name the company has used to do business has to be reported as part of the company's report to FinCEN.

There also has to be a street address of the principal place of business. Again, this can be problematic for certain types of new entities, like distributed autonomous organizations, which may not have any physical existence. And again, FinCEN is aware of this and knows that they have to come up with some way to address it, but it may be a bit of a gray area for a time. So we're waiting to see. A lot of guidance that FinCEN might otherwise provide to us is kind of delayed because they're so focused on getting the act up and running on January 1 with the BOSS system that there isn't a lot of time for a whole lot else, and as a result, we're going to go into that with some gray areas. This is one of them.

The company has to report its jurisdiction of formation. This is typically the state where it was formed. It could also be a tribal jurisdiction in which it was formed. It might be the territory in which it was formed.

And then, finally, it has to report its taxpayer identification number, the TIN. Now the TIN has raised some questions because companies may not typically get one right away, and newly formed or registered entities oftentimes don't have them. But FinCEN looked at that and realized that it really isn't a difficult procedure to get a TIN number, and therefore they are going to require it. So newly formed or registered entities have 30 calendar days to report. So they think that's more than enough time to obtain a taxpayer identification number. And it will be 90 days for those that are formed during 2024 to report. So there's plenty of time for companies to get a taxpayer identification number prior to reporting, at least according to FinCEN.

There may be foreign reporting companies that do not have a U.S. taxpayer identification number, and FinCEN accounts for that. Foreign reporting companies that don't have a TIN can report their foreign tax identification number in lieu of the U.S. taxpayer identification number.

Next up, I'm going to move on and talk about the beneficial owner and company applicant information. For each beneficial owner and for each company applicant note that there can be as many beneficial owners as qualify and that could potentially be several, more than four anyway, because not only does it include those with 25% ownership, but it includes those that have substantial control over the entity as "substantial control" is defined in the regulations. But when it comes to company applicants, there's a maxim of two that can be reported.

So for each beneficial owner and up to two company applicants, it requires the full legal name of the individual, the date of birth of the individual, the residential address of the individual, although if the person is being reported as a company applicant and that person is in the business of forming entities or filing formation documents on behalf of entities, then that company applicant can report the business address. In addition, each beneficial owner and company applicant must report a unique identifying number from certain documents, that are specified in the act, that are issued to the individual by state or federal government. And it also has to include a legible image of the document that provided the identifying number, and that document must include a photo of the individual, a recognizable photo of the individual.

As far as the acceptable sources of the unique identifying number, those are specified in the statute, and that has to be a current, non-expired passport issued by the United States or a current non-expired identification document issued by a state, local government, or Indian tribe. It can be an unexpired driver's license issued to the individual by a state, and it can be a non-expired passport issued by a foreign government.

So these are very specific. I've been asked a lot of questions, "Well, can I use my bar or my attorney license," for example. And as it's laid out here, I think the answer to that is no because that type of document, for one, it doesn't include a photograph, in most states anyway. But more importantly, it's not one of the documents that are specified in the act. It's not an identification document, which I believe is intended to apply to the ID issued to non-drivers who don't hold a driver's license.

Now once the information is reported to FinCEN, it has to be maintained, and that means updating the information if it changes, or if the information was incorrect at the time it was reported, then a correction report has to be submitted. So I want to address those issues as well.

First of all, update reports. Once an initial report has been submitted to FinCEN, if information on the report changes, the act requires that reporting companies update the information, and so they have to submit an update report to FinCEN. And under the reporting regulations adopted for the act, the reporting company has 30 calendar days after the change with respect to any information to submit an update to FinCEN. So 30 calendar days after the information changes. Again, there's some gray area in here about what if the reporting company doesn't know about it within 30 days of the change? Now that's still into that gray area.

There are some exceptions. If there's changes to the company applicant information, that does not have to be reported. Once the company applicant information is submitted, it never has to be updated, and there's good reason for that. Company applicants, in many cases, will be the employees of service companies like CSC that don't have any useful information for law enforcement regarding the company, and therefore it's not necessary to update it. It really doesn't have a whole lot of impact for FinCEN. But if the beneficial owner information changes, that certainly would be something that has to be reported.

If the image of the identification document changes but did not change any of the information reported to FinCEN, in other words probably the address and the identification number, things like that, then that doesn't have to be updated. And if the company goes through termination or dissolution, that doesn't have to be updated. In some cases, for a company that goes through that type of thing, it will be important to take a look at the specific regulations to determine whether an update report is required.

So what kind of changes require an update report? Well, certainly who is a beneficial owner. If the persons that qualify as a beneficial owner change, then it's necessary to report that change to FinCEN. Also if it's information reported for any particular beneficial owner. For example, a change in residence of a beneficial owner would require a change or an update report. And if a reporting company that has to report later meets the requirements for an exemption, an update report would need to be filed to indicate to FinCEN that the company now qualifies for an exemption.

As far as corrections to information reported to FinCEN, the act does require that the act (sic) provide complete and correct information. If the reporting company discovers that it made an error in submitting the information so that the information is incorrect, then the reporting company will have to update that information. It should be updated as soon as possible. The act says that it has to be within 90 days. FinCEN has narrowed that down to say 30 days. And FinCEN will help any person to submit a corrected report by providing the capability of doing that online. But correction is required to avoid the civil and criminal penalties that may arise for reporting incorrect information.

So as far as the corrected report, it has to include all information necessary to make the report complete and accurate. In other words, we haven't seen the fields for this yet, or at least I haven't, but I suspect it's going to require resubmission of the entire report. And as I mentioned, it must be filed within 30 days after the reporting company becomes aware or should have known of the error in the initial report.

I mentioned earlier the FinCEN identifier. This is going to be an important number certainly in CSC's industry and possibly for law firms and others that do a lot of company formation or for beneficial owners that might be involved in multiple companies. And what a FinCEN identifier is, is a number issued by FinCEN to simplify reporting. So a beneficial owner or company applicant or the reporting company itself may report the FinCEN identifier in lieu of all the information that's required by the CTA and regulations.

So it's possible if you say, for example, form an entity through CSC and a CSC employee is acting as the company applicant, we would report back the FinCEN identifier rather than the personal information of the particular employee that acted as the company applicant. So this is a way of protecting the personal information of company applicants and the beneficial owners who may want to take this and report their information directly to FinCEN instead of to third parties.

So the way the way it works, to obtain a FinCEN identifier, there's no fee to do it. A person can go online and apply for a FinCEN identifier. All the applications for FinCEN identifiers must be submitted online. My understanding is that it will require having credentials to be able to log in to the federal government and be able to access the submission for FinCEN.

An individual who wants to apply for a FinCEN identifier must submit an application containing all the information that would be required for a beneficial owner or company applicant, but this information goes directly to FinCEN. It doesn't go through the reporting company. And again, this is a way of helping protect the personal information of the beneficial owner or company applicant.

An entity can obtain the FinCEN identifier when it submits its report as a reporting company or at any time thereafter. A company FinCEN identifier can be helpful when, for example, the company might be a subsidiary and has to report up through another entity. I'm not going to go into too much detail there. FinCEN did last month release some more information on the use of FinCEN identifiers by a reporting company.

It's important to know that FinCEN identifiers will not be available prior to January 1, 2024. But beginning on that day, they will be again accepting applications. Now once the application is submitted, the FinCEN identifier is issued instantly. So if somebody needs a FinCEN identifier on January 1, they can get the FinCEN identifier on January 1 and be able to report beginning that date, assuming of course that FinCEN has everything up and running on that date as they promised.

A few things about FinCEN identifiers though, there are some issues with them. There are some limitations. An individual or reporting company can only obtain one FinCEN identifier, and that may raise questions about, well, what if a person that wants to get one is both a beneficial owner and acts as a company applicant? Well, they're only going to get one FinCEN identifier, and they can use that number for anything. The FinCEN identifier is unique and specific to the individual or entity to which it is issued, which means it can only be used for that individual or entity. And misuse of a FinCEN identifier is a reporting violation. So that means it's subject to civil and criminal penalties if a person that holds a FinCEN identifier does not keep the information updated or if they allow it to be shared and things like that.

So some issues to be in mind. The issuance of a FinCEN identifier, currently it places the holder under a lifelong obligation to file updates within 30 days after any of the application information changes. FinCEN is aware that the burden placed on these people who might hold these numbers might be unreasonable, and so they're looking at ways to deal with it. But in any event, failure to file the required update within a 30-day time period if the information changes is a reporting violation, as I mentioned, and that would be subject to civil and criminal penalties. And also, as I mentioned, FinCEN is aware of the burdens that this places on those who hold the IDs, and they are examining options that would allow a FinCEN identifier holder to deactivate that number, for example if they're a company applicant and decide to change jobs at some point and move on.

Next up, I want to talk about access to beneficial ownership information. Obviously, FinCEN is going to be holding on to a lot of information, including personal information of beneficial owners and company applicants as well as the companies themselves. So the Corporate Transparency Act limits access to beneficial ownership information. It can be accessed to federal agencies for law enforcement activities. Now law enforcement is broadly defined. It's not just criminal enforcement, but also civil law enforcement.

It is also accessible by state and local agencies for law enforcement purposes, but it requires jumping through some hoops, including approval of a court and a review by FinCEN before they will grant access, and then access to the database will be rather limited. The federal agencies will have broad access to the database. State and local agencies would be limited probably to just a particular company that they're investigating.

There are certain exceptions that allow foreign agencies to access beneficial owner information, but these will be very limited and it will require getting approval through intermediary federal agencies before any foreign government can get access to beneficial ownership information for law enforcement purposes.

And then, finally, financial institutions will be able to access beneficial ownership information as part of their know your customer and due diligence requirements under federal law. However, financial institutions will not have broad access. They will only be able to run searches on particular companies and won't have broad, open-ended access, and the company will have to give them permission to do that. So it's not a not a broad access to financial institutions.

In the time remaining, I want to talk about what the reporting violations entail and the penalties that are involved because they are rather harsh. Now when it comes to reporting violations, both individuals and reporting companies can be subject to penalties. The rule allows FinCEN to extend civil and criminal penalties to any person that violates their obligations under the act or the regulations. And this may apply to third parties who are not beneficial owners, company applicants, or even the reporting company if a third party directs or controls another in such a way that they are forced to provide false or incorrect information or otherwise fail to report. So the reporting violations can reach a broad spectrum of people that are involved in a company.

These reporting violations can be used to coerce individuals who are reluctant to comply to comply. So, for example, a company applicant who maybe has little connection to the company may be reluctant to provide their personal information to the reporting company. Well, this could be used to compel them if they haven't provided, for example, a FinCEN identifier. Likewise a reluctant beneficial owner might have to be coerced under threat of these penalties to provide the information as necessary.

Now the penalties, as I mentioned, are harsh. The penalties for reporting violations are for anybody that willfully provides or attempts to provide false or fraudulent information, or they willfully fail to report complete and accurate or fail to update beneficial information with FinCEN. In such cases, there will be civil penalties available that could be assessed, and that can be up to $500 per day that the violation continues or hasn't been remedied. Criminal penalties, these can include imprisonment up to 2 years and criminal fines of up to $10,000 for somebody that commits a reporting violation. So the penalties are harsh, and it is important that any beneficial owner, reporting company, or company applicant is aware of this.

In addition, there are even harsher penalties for unauthorized disclosure or use of beneficial owner information reported to FinCEN. Anyone that unlawfully or knowingly discloses or uses information, and this includes beneficial ownership information obtained through the report, or any disclosure made by FinCEN, if anybody has access to this information and discloses or uses it unlawfully, they will face civil penalties of $500 per day. But criminal penalties will be up to 5 years and fines of up to $250,000. And those go up even more if it's done as part of a pattern of illegal activity or violating another law.

So the penalties are harsh. I want to point out, though, that the penalties for unauthorized disclosure only apply to information that has reached FinCEN according to the regulations. Until it gets to FinCEN, it's not protected by the Corporate Transparency Act.

I'm going to wrap up with the last minute I have here by talking about some of the resources that FinCEN has available and the outreach they have planned. I'm going to go through this very quickly because I'm at the end of my time.

FinCEN has set up a Beneficial Owner Contact Center. It should be operating within the next week or two. It will have a chatbot, a live chat, and live telephone support. The initial plan is to have 30 phone and chat representatives available between 9:00 a.m. and 5:00 p.m. Eastern time. This is going to be a challenge for anybody that needs information from FinCEN because I did the math and being that FinCEN estimates 32 million companies will need to report, if you do the math, I came up with a calculation that FinCEN will only be able to spend, depending on what percentage of companies try to contact FinCEN, during the first year there may be anywhere from a few seconds to up to maybe a minute and a half available for each contact, assuming they're evenly spread out and they won't be. Bottom line on it is that FinCEN is going to be overwhelmed with inquiries, and it's going to be very difficult. In my opinion, anyway, it's going to be very difficult to get through to them. So be aware of that. Also FinCEN is not going to provide legal advice. And many of the questions that come from or to FinCEN are going to require the provision of legal advice.

Just to wrap up here, some information about FinCEN's web page and the content that is available there. And I won't go into detail on this because I am going to hand the program off to David Jefferis at this point for more information on how CSC can help.

David: Wonderful. Thank you, Paul. I really appreciate that. And thank you to all of our audience for joining us today. I feel like I should start by mentioning that I am not an attorney, nor do I play one on webinars. So I'm very grateful that I get to follow Paul with his deep subject matter expertise and really brilliant insights on the legislation itself.

And so what I can say for myself is that I've spent the better part of the last year having extensive conversations with dozens upon dozens of law firms and corporate legal departments around the CTA, along with my colleague and good friend Julie Dallmann, to really understand the challenges that they're facing as a consequence of this legislation. And also really I think we came away with a very strong sense of the type of solutions that firms and corporate legal departments are interested in from providers like CSC. And so those conversations have really helped inform the offering that we're bringing to market in January, which I'm very excited to talk about.

So now let's get into some of those specifics in terms of what I'll call our beneficial ownership filing offering. So the first thing that we want to mention is that even though the CTA is obviously brand new, right, it's going into effect in just a few weeks, this is actually a familiar framework for CSC. You'll see here on the slide that there are a dozen countries mainly in Europe where CSC is currently providing beneficial ownership filing services. And so folks that have a multinational presence may be familiar with what's often referred to as UBO or ultimate beneficial ownership. And so, again, there certainly are nuances obviously around the CTA, but this type of work is not unfamiliar to CSC. So we're able to kind of leverage that experience and familiarity to go to market with kind of a multifaceted offering that we think is going to really resonate with our clients and our law firms that we support.

So really it's a multifaceted offering, and I'll use a little bit of animation here to tease the three components that I've got a slide for each in just a moment. So we'll first talk about a CTA Beneficial Ownership Filing Service. We'll talk about an award-winning solution called CSC Entity Management and the role that that could certainly play. And then we'll talk a little bit about the concept of a tailored, custom CTA service that may be of interest to certain organizations.

So really what we're leading with is what we're calling our CTA Beneficial Ownership Filing Service. And so I mentioned having extensive conversations with law firms and corporate legal departments, and one of the things that really came out again and again, time after time is that I think the most common thing that folks are looking for is a partner where effectively they can outsource this work to a service provider like CSC. And I think there's sort of a fair parallel that I could draw with our Annual Report Preparation and Filing Service, which is a wildly popular managed service that we offer, where effectively we have clients that could take that work on themselves but find that it's really advantageous to again have CSC take on the preparation and filing of those types of reports. And again, in a similar vein, that's what we'll be offering as it relates specifically to beneficial ownership reports through the CTA legislation with FinCEN.

And so we certainly will have multiple methods and avenues for clients to provide information to CSC because, of course, in our role as registered agent we're not going to necessarily know who are the beneficial owners and what is their residential address and their driver's license expiration. That is clearly beyond information that we would sort of naturally have in our traditional role as a registered agent. So we will, of course, be looking to our clients to provide us with that information, which will include a portal that we're standing up on the CSC Global website, a secure form where again clients and firms can provide that type of sensitive data to CSC.

Now I do want to be clear that CSC does not provide or will not be providing legal guidance on whether or not an entity is exempt. We're not providing legal guidance on whether or not an individual meets the definition of being a beneficial owner by virtue of ownership percentage or substantial control. So we are, again, certainly relying on our clients to sort of do that deep analysis either in coordination with their inside or external counsel. But again, once you've been able to make those critical determinations, we can step in and really take it from there, and this would even include outreach. So we certainly appreciate that in many cases you can have beneficial owners that are investors or other sorts of external stakeholders where there might be a bit of a chase to kind of track down that information, and that's actually a part of the outreach that we can provide through this filing service that we're getting ready to launch.

As Paul mentioned in his remarks, there are multiple types of beneficial ownership reports, and we are in a position to handle all of those, including those initial filings, corrections, amendments should information change. And then again, if you have an entity that is initially bound to report as a so-called reporting company, but then through any number of circumstances now meets one of those exemptions, we can handle the filing to again clarify that this entity is now exempt from future reporting with FinCEN. And really the spirit here is that CSC is the business behind business, and this allows our clients to really focus on running their business and focusing on their work, and then we're here as a partner to really take over the maintenance of this work on their behalf.

Now I also want to talk a little bit about CSC Entity Management. Now to be clear, this is not a required component of the outsourced filing service that I talked about a moment ago, but it is a very powerful solution that organizations have been using for years to track information about their entities and their owners and their officers and directors and being able to build structure charts and route documents for electronic signature. And as it turns out, it's beautifully situated to help organizations track all of the information that's relevant to FinCEN. And again, Paul took us through information about the reporting companies, including the principal place of business and the doing business as names, individuals with 25% or greater ownership interest, individuals such as a general counsel or a CFO or other individuals that are able to exercise that so-called substantial control, again they do meet that that FinCEN definition of a beneficial owner.

And so our platform creates a very secure structured place where that type of information can be stored, including those sensitive documents like a passport image or driver's license number. And so that framework is there as we speak. One way to look at it is that when it's time to file with FinCEN, it's a little bit like taking a test where you kind of need all the answers to those questions, and CSC Entity Management can be a place where all that information can be stored.

And we're really excited to announce that in just about a week and a half we're going to launch a new beneficial ownership visualization report that is going to aggregate all the information that's required by FinCEN, and it's going to provide visibility that's going to be really helpful for organizations that have complex ownership structures. And so you might have a situation where Individual A owns 50% of Company B, and in turn Company B owns Company C by 50%, and this report will actually do the math so that you can understand those ownership percentages. You can see appointments across a range of subsidiaries through an org chart feature. And so, again, it's not always a direct relationship between the beneficial owner and the reporting company, and so this report is going to do an amazing job of really putting all the pieces of the puzzle together for clients that utilize our Entity Management technology.

I do have one eye on the clock. I know that we want to take some questions as well, and so I'll really conclude with what we're calling our custom tailored CTA Solutions. And so effectively we understand that there could be clients that have a high volume of reporting companies, or maybe there are some imminent changes. Maybe you're going to do a series of formations, or you're going to do a major acquisition and you might be inheriting a large number of entities that may be bound by the CTA regulation. Or maybe you're going through some structural changes in terms of maybe there's a change of key senior leaders within the organization, or there might be some significant ownership changes and you're looking at that thinking, gosh, this is going to necessitate either a series of initial filings or maybe some amended filings. And so effectively we can put together really a custom solution where we can put together a statement of work and put pricing together that will be sort of reflective of the work involved. And it doesn't need to be kind of a cookie cutter filing solution, where you're not being sort of tailored towards in terms of your specific needs if you have kind of a range of requirements that pop up through some of the examples that you're seeing here on the screen.