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Key Corporate Transparency Act Guidance for Timely Filing

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The Corporate Transparency Act (CTA) is in full effect. Filing deadlines are fast approaching and guidance from FinCEN continues to evolve. Stay abreast of the latest developments by watching this webinar hosted by CSC’s Allison Gerhart and David Jefferis.

Get caught up on CTA reporting obligations, learn what our team has learned to date, and hear the results of CSC’s latest market survey regarding readiness to comply with the CTA. The webinar will conclude with a Q&A session with our presenters.

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.

Caitlin: Hello, everyone, and welcome to today's webinar, "Key Corporate Transparency Act Guidance for Timely Filing." My name is Caitlin Alaburda, and I will be your moderator.

Joining us today are two of CSC's experts, Alli Gerhart, Vice President of International Compliance and Governance, and David Jefferis, Senior Director of Product Management for Global Compliance. And with that, I'd like to welcome and pass things over to Alli and David.

David: Thank you, Caitlin. We're both very excited to be here today. We want to thank our audience for taking time out of their schedules to join us. We have a lot of really I think important content to cover on the CTA and CSC services. So we'll start by taking a look at our agenda for today's webinar.

So a lot of you might know some of the basics and maybe you're here for a refresher. But even if you're just kind of starting out on your journey of mastering the CTA, you're in the right spot. So Alli is going to kick us off by giving an overview of the legislation. We'll talk about some of the key kind of concepts and terms, like reporting company, company applicant, beneficial owner. We'll talk about the timing of when are filings due, specifically what information is required in your filings. And then, certainly for those that have been really following along with our CTA webinar series, we're providing a number of updates of what's happened, which there a few things here and there, with the CTA since we got together in March for our last CTA webinar. So there's been some changes on the legislative front. Also there's been some litigation that made some news, and so we'll kind of talk about some of the efforts to delay or undermine the ongoing implementation of the CTA. So we'll touch on that a little bit as well.

We did commission a market survey. So we're excited to kind of share some of the feedback that we got as a part of that survey, how other organizations are thinking and feeling and preparing to comply with the CTA. And then we'll spend a little bit of time talking about how CSC can bring services and technology to the forefront to assist organizations that have this filing obligation.

And then we're going to do our best to save a little bit of time for Q&A at the end. But as Caitlin mentioned, we do have the Q&A widget. So as we're presenting, we'll do our best to stay on top of it. Please ask away and we'll do our best to answer those questions during the session. And if we can't get to all them, we'll certainly follow up when the session is through.

So that's what we're going to cover. I'm going to kind of drop to the background for a while until towards the end of the webinar. But now I get to turn things over to my colleague Alli.

Alli: Great. Thanks so much, David, and good afternoon, everyone. Thank you so much for joining us.

Broadly speaking, the CTA obligates reporting companies to report certain information about their company applicants and beneficial owners. Therefore, to apply the CTA correctly, you'll need to understand those three key terms —reporting company, company applicant, and beneficial owner. So for those who may be a little less familiar with the CTA or who are looking for a good refresher, we'll be talking about each of those terms at a high level, and within that discussion I'll also be talking about recent updated guidance from FinCEN about each of those items.

So in general, a reporting company is a domestic corporation, LLC, or similar entity, or foreign company registered to do business in the U.S. unless an exemption applies. A company applicant is the filing party. The term refers to the person who files the company formation document with the registry and, if different, the person that directed the filing. And beneficial owners are the company's ultimate owners and significant controllers.

So the term reporting company means a corporation, limited liability company, or similar entity that is either created by filing a document with the secretary of state or similar office of a state or American Indian tribe, or 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. FinCEN has so far declined to define what constitutes a similar entity or provide a list of similar entity types. However, a similar entity is generally understood to mean an entity that was formed by the filing of a document with the secretary of state or similar office of the appropriate filing jurisdiction. Given the variety of formation practices and terminology used in different jurisdictions, FinCEN believed it would be difficult to create a list that would be applicable in every scenario.

Not surprisingly these ambiguities raised a few questions, and FinCEN has recently issued some additional guidance. In April, FinCEN addressed three specific scenarios. So corporations treated as pass-through entities under Subchapter S of the Internal Revenue Code, also called S corporations are typically created or registered to do business by the filing of a document with the secretary of state or similar office. Under these circumstances and assuming no other exemption applies to the S corporation, it is a reporting company.

But domestic corporations or limited liability companies that are not created by the filing of a document with the secretary of state or similar office, here the answer would be no. These companies would not be reporting companies. The regulations define a domestic reporting company as including a corporation or limited liability company, but that's based on the understanding that these types of companies are generally formed in that way. If they're not formed in that way, then no, they're not reporting companies.

FinCEN also addressed homeowners associations. Here again, it depends because HOAs can take a variety of corporate forms. Just as any other entity, consider whether the HOA was created by a filing with the secretary of state or similar office, or whether any other exemption applies.

And finally, last week FinCEN issued three additional FAQs that address entities related to Indian tribes. I won't go into too much detail here given the limited applicability to most corporate structures. However, it's worth noting that, for purposes of the CTA, Indian tribe means any Indian or Alaskan native tribe, band, nation, pueblo, village, or community that the Secretary of the Interior acknowledges to exist as an Indian tribe. The Secretary of the Interior is required to publish annually a list of all recognized Indian tribes in the Federal Register.

The FAQs draw a distinction between legal entities formed or registered to do business under the laws of an Indian tribe versus tribal corporations that are formed under federal law by the Secretary of the Interior. The latter type are not formed under the laws of an Indian tribe and are thus not reporting companies.

So even if an entity meets the definition of a reporting company, you must then consider whether it meets any of the 23 exemptions. If an exemption applies, the entity is not a reporting company, and it does not need to file a BOI report with FinCEN. So that's a common question we get. If you have an exempt entity, there just is no filing necessary. You don't file a form that says you are exempt.

So the vast majority of exemptions apply to regulated companies, such as financial institutions, SEC regulated companies, public utilities, and insurance companies. The exemptions are specified by reference to definitions contained in particular laws, such as the Securities Exchange Act, the Investment Advisers Act, the Commodity Exchange Act, and others. If they apply to your business, you're likely already familiar with these, and so I won't discuss them here.

But there are three exemptions that are more broadly applicable. First, the large company exemption, subsidiary of exempt entity exemption, and inactive entity exemption.

So for large operating companies, for large, private, unregulated companies, this exemption is absolutely key. There are three elements, all of which must be satisfied for the exemption to apply. First, the company must have more than 20 employees. Those employees must also be employed in the U.S. and must be employed by the entity itself, not aggregated across the corporate group. This can be a bit of a trap because even a company that you would normally think of as a large corporate enterprise, it may not meet this exemption if their employees are spread across different subsidiaries or otherwise not employed by the parent company.

So second, the company must have at least $5 million in gross receipts or sales from U.S. income. That amount must be reported on the company's federal income tax return for the previous year, excluding amounts from sources outside the U.S. Helpfully where the company is part of a consolidated group, it's sufficient for the $5 million to be met by the group collectively rather than by the entity individually.

Last week FinCEN issued additional guidance to address companies that have not yet filed their tax returns for the previous year. This can happen for example because the company has not filed its return for the previous year at the time that the beneficial ownership information is required to be reported, or because the return filed in the previous year was for the year prior to that. So in this case, a company should use the return that was filed in the previous year for purposes of determining its qualification for the exemption. If a company relying on the exemption subsequently files a tax return demonstrating less than $5 million in gross receipts or sales, if it no longer qualifies for this exemption or any other exemption, then it would have 30 days from the date of the tax return to update its BOI report or file an initial report.

So third, the company must have an operating presence at a physical office within the U.S. This has been defined to mean a physical location where the entity regularly conducts business. The location must be owned or leased by the entity, and it must be physically distinct from the place of business of any other unaffiliated entities.

In April, FinCEN issued an updated FAQ to address situations in which a company fluctuates above or below the employee and gross receipts or sales thresholds. FinCEN clarified that, yes, an update would be necessary. So if a company files a BOI report and then becomes exempt as a large company, the company should file a newly exempt entity report. And if at a later date the company no longer meets the criteria for the large operating company exemption or any other exemption, the reporting company should file an updated BOI report at that time. Updated BOI reports are due within 30 days of the occurrence of the change.

Frankly, this is not a particularly astonishing update. I suspect that in asking this question people were really hoping for a more practical approach for those limited circumstances and limited companies where you might repeatedly hover above or below those thresholds. So if your company falls into that category, you may be able to utilize the threshold, but it may be more burdensome to monitor and make updates as facts change over time.

Subsidiaries of exempt company, this is another critical exemption for larger corporate structures. This exemption applies to an entity whose ownership interests are controlled or wholly owned, directly or indirectly, by certain types of exempt entities. This is a fairly simple rule, no multi-element test. But there are two key things to be aware of.

First, notice the emphasis on wholly owned entities. Entities only partially owned by an exempt entity or parent companies of an exempt entity do not qualify for this exemption. This was a deliberate decision by FinCEN. In their view, to expand the definition to these types of entities would be effectively creating a new exemption, which they declined to do.

The exemption also does not apply to subsidiaries of all exempt entities. The vast majority of exemptions do qualify for that prerequisite, but there are four listed here on this slide that do not. So the key thing to know is just if your parent company is relying on one of these exemptions, its wholly owned subsidiaries cannot utilize that exemption.

So finally, the inactive company exemption. I frankly consider this to be the exemption of last resort. The exemption has six elements, all of which must be satisfied for the exemption to apply. Several of these elements contain a bit of ambiguity, and a change in circumstance could quickly disqualify an entity, thereby requiring an updated BOI report.

The six elements are listed here on this slide. The first one is really clear. The entity must have been in existence on or before January 1st, 2020.

The second element, the entity was not engaged in active business is a little more ambiguous. Some commenters questioned whether winding up activities could be considered active business. FinCEN declined to create specific rules, reasoning that there was too much variability in state practices and more specific examples would still leave much confusion.

The third element, no foreign ownership should also be fairly simple to apply. The rule covers both direct or indirect and whole or partial ownership.

The fourth element, no change in ownership in the preceding 12 months was also flagged by some commenters to be somewhat ambiguous. Does a change in ownership apply to direct or indirect, whole or partial ownership like the previous element? In the commentary to the final rule, FinCEN stated that they believed that the meaning of any change in ownership was already sufficiently clear.

The fifth element requires that the entity has not sent or received funds in any amount greater than $1,000, either directly or indirectly or through any financial account in which the entity or an affiliate had an interest in the preceding 12-month period.

The sixth element requires that the entity not otherwise hold any other kind or type of assets, including any ownership interest in any entity. Commenters urged FinCEN to clarify the exemption would apply even if the entity had a bank account or owned certain incidental assets, such as IP rights or website domains. Here again, FinCEN declined.

I mention the commentary here because in my role as in-house counsel, I see entities in our own structure that, for all practical purposes, are not conducting active business. However getting rid of historical entities can be a real challenge. Sometimes entities can be around for so long that the organization no longer really knows if the entity has assets or continues to serve any purpose. Getting rid of these entities can be risky. In other words, what might we break that we don't know about yet? It's that same uncertainty that makes it hard to confidently rely on this exemption.

So putting these three exemptions together, here's a really simple example. Large company is exempt under the large company exemption. It has direct and indirect wholly-owned subsidiaries, who are then all exempt under the subsidiary of exempt company's exemption. There's no need to rely on any other exemptions.

But switching up that scenario just a bit, here we have a JV partner with a 20% interest in JV sub A. LC sub 1 and its subsidiaries LC sub 2 and LC sub 3 are still wholly owned by large company, so they can rely on the subsidiary exemption. However, JV sub A and JV sub B are only partially owned by large company. They will need to inquire about the status of JV partner, unless they independently qualify for some other exemption. We know that because JV sub A owns 100% of JV sub B, JV sub A will not qualify for the inactive company exemption. Here we would need more information about JV partner, JV sub A, and JV sub B to determine whether any of these are reporting companies.

Final example, here we have a wholly owned corporate structure, but the entity qualifying for the large company exemption is not the ultimate parent. This can easily happen when like here the main operating company, Large Company is held by a holding company with no employees of its own. Perhaps the enterprise also has a few subsidiary companies owned by the Holding Company rather than Large Company.

The key thing to understand in this example is that neither the large company exemption, the subsidiary exemption, or the inactive company exemption apply to HoldCo. Assuming HoldCo is a corporation or other entity created by a filing with the secretary of state and no other exemption applies to HoldCo, HoldCo is a reporting company. Further, assuming the same facts about HC sub A and HC sub B, these entities will also be reporting companies. They cannot rely on the subsidiary exemption since they are not in the direct chain of ownership of Large Company.

So company applicants, once you determine that you have a reporting company, the next key concept is the company applicant. But before you do too much analysis, first consider whether this is relevant to your reporting company. For this question, the key date is January 1st, 2024, the day the CTA came into effect. For domestic reporting companies created before 01/01/24 and foreign reporting companies registered to do business in the U.S. before the same date, you do not need to report a company applicant. This is extremely helpful and was a deliberate policy decision. For companies that have been in existence for a really long time, it may not be possible to determine who the company was anymore. But for reporting companies created on or after January 1st, 2024, you had notice of this requirement and the opportunity to collect the appropriate information. So the company applicant will need to be reported.

For companies that must report a company applicant, they must report at least one but no more than two individuals. The company applicants must be individuals, not legal entities or organizations. There are two types of company applicants, one the individual who directly files the document that creates or registers the company, and if more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing.

We'll talk more about updates to BOI reports shortly. But for now, it's helpful to know that once the company applicant information has been reported, there's no need to update this information if any of the company applicant's personal data later changes.

Most companies are created or registered through their registered agent, like CSC. For CSC's customers utilizing our filing services, a CSC employee will be one of your company applicants. We'll be able to provide the company with the employee's name and FinCEN identifier in order to complete any necessary BOI filing.

The question of who is primarily responsible for the filing can be a bit more ambiguous. It's easy to envision a scenario where more than two people are involved. So you have to make a bit of a judgment call about who's primarily responsible. In my organization, for example, that person is generally going to be me as the attorney in charge of our corporate structure. I don't personally file the incorporation document, but I do coordinate with the business leaders to understand the needs of the company. I'll prepare the draft filings, and I'll give instructions to our service team to complete the filing on our behalf. I've also spoken to several law firms who are taking the position that the attorney in charge of the matter is also the company applicant. Again, it's a judgment call based on the particular facts and circumstances of your involvement.

Finally, every reporting company must report at least one beneficial owner. There's no maximum number of possible beneficial owners. Beneficial owners are always individuals, and there are two types — individuals who directly or indirectly own or control at least 25% of the ownership interest of the reporting company and individuals who exercise substantial control over the reporting company.

Reporting companies are required to report all individuals who own at least 25% of the ownership interests and all individuals who exercise substantial control. So what is an ownership interest? Under the CTA, an ownership interest is broadly defined and it includes equity, stock, or voting rights, capital or profit interest, convertible instruments, options or other binding (sic) privileges to buy or sell any of the foregoing, or, and this is a catchall, any other instrument, contract, or other mechanism used to establish ownership. Twenty-five percent or greater interest in any of these items makes an individual a beneficial owner under the ownership test.

So what does it mean to have substantial control? Again, the test is very broad. It includes any individual meeting any of four general criteria: a senior officer of the company, such as a president, CEO, CFO, COO, general counsel, or other officers who perform a similar function; a person who has the authority to appoint or remove certain officers or a majority of directors; a person who directs, determines, or has substantial influence over important decisions; or, and another catchall, has any other form of substantial control.

Given all of these different ways to become a beneficial owner, this definition could potentially include a lot of people. Depending on the company's ownership and control structure, there may be some ambiguity.

To illustrate the analysis FinCEN provides a few scenarios in its written guidance. The most complex example is listed here for a reporting company that's a corporation with multiple indirect owners through Company Y and Company Z. In this example, Individuals A, B, C, and F are all beneficial owners. Individual A is the CFO. Individual C is the CEO and president. And Individual F does not have an official title, but we're told he does direct important decisions. These individuals all meet the substantial control test.

Individual B owns 70% of Company Y's 50% interest in the reporting company. Individual B's indirect ownership interest can be calculated by multiplying 50% times 70%, for a total interest of 35%. Therefore, Individual B is also a beneficial owner because his indirect ownership interest in the reporting company exceeds 25%.

Individuals D and E own 25% of Company Z's 50%, for a total interest of only 12.5% each. Absent any other facts indicating any other form of ownership and control, we can conclude that Individuals D and E are not beneficial owners.

Although we have already determined that Individual A is a beneficial owner under the control test, it's also worth noting that he's also a beneficial owner under the ownership test. He owns 30% of Company Y's 50%, which equals 15%, but he also owns 25% of Company Z's 50 %, which equals 12%. Therefore, his total indirect ownership interest in the reporting company is 15% plus 12.5% or 27.5% total.

For purposes of filing a BOI report, it's not necessary to specify how exactly someone qualifies as a beneficial owner. I just include that information here to explain the analysis.

The prior example was the most complex example available in FinCEN's guidance. But one of the major points of difficulty we've seen is how to apply the beneficial owner analysis when a trust directly or indirectly holds shares in a reporting company. In the April FAQs, FinCEN clarified that, yes, beneficial owners can own or control a reporting company through trusts. They can do so either by exercising substantial control over a reporting company through a trust arrangement, or by owning or controlling ownership interests of a reporting company that are held in a trust.

Unfortunately, for beneficial owner analysis when it comes to trusts, there's a tremendous amount of variability. FinCEN did attempt to provide some clarity, but noted that particular facts and circumstances will determine whether specific trustees, beneficiaries, grantor, settlors, or other individuals may qualify as beneficial owners.

In our previous webinar, we mentioned a section in the final reporting rule. FinCEN's FAQs largely mirror this language, providing the following conditions indicate that an individual owns or controls ownership interest through a trust. First, a trustee or any other individual that has the authority to dispose of trust assets. Two, a beneficiary that is the sole permissible recipient of income and principal from the trust or has the right to demand a distribution of or withdraw substantially all of the assets of the trust. And three, a grantor or settlor who has the right to revoke the trust or otherwise withdraw assets of the trust.

FinCEN's FAQs repeat this list of factors and note that this list may not be exhaustive of all the conditions under which an individual owns or controls ownership interest through a trust. There may be other arrangements with certain individuals that they may be considered a beneficial owner through that trust.

FinCEN's April FAQs also included an important answer to reporting obligations in respect of corporate trustees. By corporate trustee, we mean a legal entity, rather than an individual, that exercises the power of a trustee. If ownership interests in a reporting company are owned or controlled by a trust with a corporate trustee, the reporting company should effectively look through the ownership interests in the corporate trustee to determine whether there's any individuals who would own or control at least 25% of the underlying reporting company.

It's worth noting that this may be really hard to do. A corporate trustee is likely a third party over which you have no information or even any right to information. If you're employed or engaged by the reporting company, you may be relying on counsel or management of the corporate trustee for this information.

Fortunately, the FAQs go on to say that the reporting company may, but is not required to report the name of the corporate trustee in lieu of information about any individual beneficial owner if all of the following three conditions are met. The corporate trustee is an entity that is exempt from the reporting requirements. The individual beneficial owner owns or controls at least 25% of ownership interests in the reporting company and only by virtue of its ownership interests in the corporate trustee. And the individual beneficial owner does not exercise substantial control over the reporting company.

Finally, in addition to considering whether the beneficial owners of a corporate trustee own or control the ownership interests of a reporting company whose ownership interests are held in trust, it may be necessary to consider whether any owners of or individuals employed or engaged by the corporate trustee exercise substantial control over that reporting company. The factors for determining substantial control by an individual connected with a corporate trustee are the same as for any other beneficial owner.

In April, FinCEN published an additional FAQ about beneficial ownership of homeowners associations. Assuming an HOA is a reporting company, just like any other reporting company, you need to look at both the percentage of ownership interests and substantial control. FinCEN concedes that there may be no individuals who reach the 25% threshold for ownership interests. However, FinCEN does expect that there is at least one individual who exercises substantial control. Indicators include role as a senior officer, authority to appoint or remove certain officers or a majority of directors, being an important decision-maker, or any other form of substantial control.

So once you've determined that an entity is a reporting company and have determined its company applicants and beneficial owners, you'll need to file the appropriate information with FinCEN. There are five pieces of information required for each reporting company: the full legal name of the reporting company, all trade names, fictitious names, DBAs regardless of whether the name is registered; street address of the company's principal place of business; jurisdiction of formation; IRS taxpayer identification number or TIN.

There may be situations in which a foreign company that registers in the U.S. is not subject to U.S. corporate income tax and has no reason to obtain a TIN. In such cases, a reporting company may provide a foreign tax identification number and the name of the relevant jurisdiction as an alternative. In the event that unusual situations arise in which a foreign company is not able to obtain a foreign tax identification number, FinCEN will consider appropriate guidance or relief depending on the circumstances.

In April, FinCEN addressed reporting companies that do not have a principal place of business in the United States. Effectively they created a hierarchy of what information should be reported. First, if a reporting company does not have a principal place of business in the U.S., then the company must report the primary location in the United States where it conducts business. If a reporting company has no principal place of business in the U.S. and conducts business at more than one location, then the reporting company may report the address of any of those locations in the U.S. where the reporting company receives important correspondence. Finally, if a reporting company has no principal place of business in the U.S. and does not conduct business functions at any location in the U.S., then its primary location is the address in the U.S. of the person designated to accept service of legal process on its behalf. Usually that's your registered agent. That should be a very unusual scenario.

For each beneficial owner and company applicant, the reporting company must file the full legal name of the individual, the date of birth for the individual, the residential street address, noting that the company applicant can report a business address under certain circumstances, a unique identifying number from certain government documents issued to the individual, and an image of the document containing the unique identifying number that also includes a photograph of that individual. Acceptable documents containing unique identifying numbers are non-expired passports, driver's licenses, and other state, local, or tribal identification documents.

For privacy reasons, some company applicants and beneficial owners may not wish to share their personal data with the reporting company. The CTA offers an alternative reporting option called a FinCEN identifier. The process to obtain a FinCEN identifier is very quick and can be done online. The individual will simply submit all of their own personal data to FinCEN and receive the identification number. The individual can then share that number with the reporting company in lieu of their personal data. The reporting company then submits the individual's name and FinCEN identifier rather than all the other fields. An entity may also obtain a FinCEN identifier either when it submits a BOI report or anytime thereafter.

Although a FinCEN identifier is helpful for protecting personal information, there are a couple of limitations and concerns. First, an individual or a reporting company can only get one, so you have to be really careful not to forget or lose the number. But the biggest concern is that the FinCEN identifier places the holder under a lifelong obligation to file an update within 30 days of any change to the application information. Failure to do so is a reporting violation subject to civil and criminal penalties. This is concerning, but the obligation still exists even if the individual no longer has any interest in or relationship to a reporting company in the future. Back in September, FinCEN stated that they're aware of this burden and are looking at options, but there's been no further developments on this initiative.

Finally, filing times, as I'm sure everyone is aware, companies created or registered before January 1st of 20124 must file their BOI reports by the end of this year, 01/01/25. Companies created or registered during the 2024 calendar year must file within 90 days of creation or registration. And for companies formed on or after January 1st, 2025, the reporting deadline shortens to 30 days. BOI reports must be updated within 30 calendar days of change of information. There's no requirement to report a company's termination or dissolution, and there's no requirement to file an updated report for changes to personal information of a company applicant. Additionally, if an inaccuracy is detected in a previously filed BOI report, the company must file a corrected report no later than 30 calendar days after the date the company becomes aware of the inaccuracy or had reason to know it.

In April, FinCEN issued additional FAQs to clarify what happens in the event that there are two competing dates for filing a BOI report. So in the examples on this slide, both companies were formed before January 1st, 2024. In the first example, the company ceases to be exempt on February 1st, 2024. So its initial BOI report will be due by January 21st, 2025 (sic). However, in the second example, the company does not lose its exemption until December 15th, 2024. In this case, the company has until January 14th, 2025 to file its BOI report. Effectively you get the better of whichever of those periods is longer.

So as we know, penalties for noncompliance with the CTA can be quite severe, including potentially both civil and criminal penalties. Those penalties apply both to the reporting company as well as individuals who would willfully withhold or fail to comply with providing their information. In April, FinCEN clarified that the civil penalty of $500 per day is indexed for inflation, and as of April 2024, the amount is already up to $591.

So there's been quite a bit of litigation activity over the CTA. In our last webinar, we mentioned the then very recent ruling from the Northern District of Alabama finding the CTA unconstitutional. The ruling enjoined FinCEN from enforcing the CTA against the plaintiffs in that case, but did not affect the obligations of other non-party companies. As anticipated, the case is currently on appeal to the 11th Circuit, with oral arguments scheduled for later this year.

There are also at least five other constitutional challenges that were filed in its wake in district courts across the country. We anticipate that different courts and different circuits will come to different conclusions on constitutionality, which is going to set us up for further appeals on the issue.

There are also a number of legislative initiatives underway. Earlier in this year, the Secretaries of State of Alabama and Mississippi issued a joint letter calling on Congress to repeal the CTA. Republicans in the House and Senate have introduced two bills to do just that, and there's also been some additional bills introduced to extend the BOI reporting deadlines.

While efforts against the CTA have been gaining some steam, we can't say at this point that any of these are in a particularly advanced stage. But we are looking out and we'll keep you updated as things develop.

So with that, David, I will turn it over to you.

David: Great. Thank you, Alli. Really appreciate that update on the latest as well as taking us through kind of from inception to how we got here with the background of the CTA, and that's really, really helpful information. So what we'll do now is we're going to segue into a market survey that CSC recently commissioned. We wanted to really get a sense for how organizations are kind of feeling, thinking, and preparing for their compliance with the CTA. And so we want to share those results now with our audience.

And so we, again, commissioned a survey. There were over 200 organizations that took part in the survey, largely based in the U.S. Although there were some organizations, multinationals based outside of the U.S. But every respondent had a U.S. portfolio of companies, so every organization was potentially impacted by the CTA. And you'll see that it's a diverse set of industries that were involved, and we really were focusing on individuals within these organizations that work within sort of the corporate legal department. So you'll see some of the titles there of the individuals that we spoke with.

And so the kind of the headline and the kind of the main result that you're seeing here is that respondents are, again, largely concerned with their organization's ability to comply with the CTA. And on the next slide we'll actually see the exact sort of details of the percentages of those that are concerned.

Also what we're seeing through the survey and also sort of what I can share anecdotally from having lots of conversations with folks going back to the latter part of last year is that it's sort of an evolution in terms of comfort and understanding of the regulation. So a lot of folks that I talked to late last year were really just trying to understand what is this thing. And now more and more when I talk to folks, they have a pretty good grasp of the regulation and are more interested in hearing about the solutions that we can bring to the market. But again, if you're still kind of at the beginning of that journey, you're certainly not alone.

Due diligence is a big part of this. So Alli took us through some examples of understanding exemption versus the need to report and trying to identify beneficial owners. And some cases, it might be simple. Other cases, there's gray and ambiguity, and it becomes challenging. And so this is a situation where organizations want to get it right, so commonly they are not just sort of meeting internally, but they're engaging external counsel to make sure that they're making the proper determinations as to exemption and as to who beneficial owners are prior to then moving forward with a plan of actually submitting filings to FinCEN for the reporting company.

So let's actually look at some of the more sort of detailed numbers out of the survey that we conducted. So one of the key questions was: How concerned are you about not just the CTA in general, but your own organization's ability to comply? And interestingly, 83% express some level of a concern, and a lot of that was sort of an advanced degree of concern that they have about it. We'll actually on the next slide get into a little bit of sort of the path forward that people see in terms of what are the solutions for dealing with this new reporting disclosure. But before we go there, you'll see some of the sort of heavy hitters in terms of what's causing a lot of this consternation and concern with the people that we talked to.

And so a lot of it deals with the sort of some guidance. There's ambiguity. There's judgment calls left and right in some cases. There's even around 50% of the respondents felt that even making that critical determination around exemption was not always straightforward. And then over a third of the audience indicated that they're not really clear on sort of the penalties for lack of compliance. And so I know that Alli just touched on that. I would argue that the penalties are fairly straightforward, and I'll also say that $500 doesn't go as far as it used to, so the inflation has already got that close to $600. But again, it really remains to be seen kind of what that enforcement mechanism is going to look like, how aggressive FinCEN might be come early next year for organizations that are not complying with the regulation.

So what is sort of the path forward? So if you're an organization that is preparing to file and really working through the assessment of, again, the obligation that you may have through the CTA, really the number one sort of answer here for how organizations can move forward is implementation of new software. And really what it comes down to is how do we track this information, not only for our initial filing, but what happens when something changes about a reporting company, it goes through a name change, it files a new DBA, maybe it has a change of address for example. What if information is changing about our beneficial owners, where maybe the CFO retires and there's a replacement? So again, having a source of truth that you can rely on is really seen by, again, the number one response here from our survey participants as sort of preparing not just for the initial obligation but the ongoing obligation of the CTA.

Also, as I mentioned, engaging outside counsel is going to be a big part of this. Organizations are leery of, again, just sort of thinking or hoping that they've got it right. But they're really looking for that sort of warm confirmation from experts in this field that they're making those critical determinations correctly as to exemption and as to beneficial owners.

Number three also sort of speaks to what we'll get to in a moment, which is solutions that we can bring to the market. But the idea is that let's not as an organization try to do this all ourselves. Let's find a service, let's find technology that can assist us with this filing obligation.

And then, the last item interestingly was sort of the idea that there'd be additional staff added to assist with this new filing obligation. And that really doesn't surprise me. We've seen a trend for 5 or 10 years or more at this point where corporate legal departments are sort of getting smaller, but they're expected to do more. And so really it is how do we do that? We find ways that we can partner with legal providers, alternative legal providers to again find service and technology that can create efficiencies in our organization.

I'm going to talk a little bit about how CSC can help organizations with their CTA compliance. And so what we launched at the very beginning of the year is what we describe as an end-to-end filing service. And so while CSC isn't providing the legal guidance to say whether an entity is exempt versus reporting, we're not providing the guidance determinatively to say whether or not someone is a beneficial owner, we're really looking to our clients to make those determinations. That said, we really can take it from there.

So we can provide you specific guidance on the information that is required about reporting companies, about beneficial owners. We prepare the reports. We file them on your behalf, and then provide back filing confirmation evidence that the filings in fact have been accepted from FinCEN. The analogy that I like to create, which is imperfect, is that it's a bit like our annual report service, which is a service that a lot of organizations are familiar with, where effectively we tell you what information we need to prepare and file your annual reports. We collect it, we prepare, we file, we provide back evidence, and it's really kind of an end-to-end solution.

Now where that analogy breaks down a little bit and this question comes up quite a bit is that the CTA, it's not an annual filing obligation, as Alli talked about. It's an initial filing, which is what everyone is focusing on for the most part right now, and then amended filings as necessary.

The other thing I'll mention is that if you happen to be using CSC for our annual report service, you're not somehow automatically enrolled to have CSC handle your BOI filing. So you would still need to reach out to us and let us know that you also wish to engage us to prepare and file these beneficial ownership reports with FinCEN on your behalf.

Our team brings quite a bit of expertise to the table. As an organization, CSC has been around for 125 years. We're very proud of that anniversary. And even though the CTA as a new regulation as at the beginning of this year, when you start to kind of think about it and break it down, it's about understanding what information is required, gathering the data, preparing, filing, submitting, again providing evidence back to clients. It's at the core of what we do as a business. And I would say that over the past six months our team has done thousands of filings. They've become bona fide experts in terms of doing these filings directly with FinCEN. So that's sort of the peace of mind that you have that you're working with true experts in terms of doing these filings.

We do handle all four types of filings, so those initial filings, corrected filings, amended filings, again, for when information changes, and as we probably talked a bit about this concept of a newly exempt filing. So again, if you're exempt from the start, you don't have to do a filing. But if you are not initially exempt, an initial filing is submitted, and then circumstances change and an entity in fact does now meet an exemption, we can handle what's called a newly exempt filing to inform FinCEN that the entity now meets one of the 23 exemptions.

There are multiple secure avenues to provide the information to CSC that we would need to file on your behalf. There is a smart form on the website. Also though for organizations that have a high volume of filings, we have a structured Excel template that we can work with, that allows you to very efficiently provide the information. We can provide secure links to gather personal information if you're providing things like passports and driver's licenses, etc.

The last quick thing I'll mention here is that CSC does not have to be your registered agent to engage us to file your beneficial ownership reports. However, if we are your registered agent and if you're maybe using us for other compliant services, like annual reports, there's a fair amount of information that we have on file in our current records for you, the name of your company, where it's formed, the formation date. We might have DBAs, EIN numbers, principal places of business. And I mention that because we can stage all that data into an Excel and really get you halfway home in terms of here's the information that we have, you fill in the missing pieces, which might largely be the beneficial owner information. You certainly would attest to the fact that the information is true, current, and correct. But instead of having to start from sort of a blank slate, we can kind of get you halfway there with all the information we have on file as your registered agent. So that's a complementary service that we can provide in terms of staging the data that we do have as your registered agent if we're serving in that capacity.

Custom-tailored solutions to hit this quickly, I want to make sure there's a little time for Q&A, we work with organizations that have a vast volume of filings. They might be looking at acquisitions or changes to slates of directors/officers that might impact beneficial ownership. And so we can put together solutions where you might have some unique needs around volume. We can talk custom pricing. You might have needs around how invoices should be handled or how evidence should be delivered. So let's have a conversation. We certainly have a very structured standard offering, but we've worked with a number of large organizations that need to deviate from that in some manner and we're very flexible with how we can bring the service so that it works for your organization.

The last sort of content slide here is about CSC Entity Management. To be clear, you can engage CSC to prepare and file your beneficial ownership reports with FinCEN and spend zero dollars on technology. Certainly there's a filing fee to have CSC prepare and file those reports on your behalf, but it's not like you have to also spend on technology. Having said that, we do have an award-winning entity management solution that absolutely can become a really helpful part of the equation, where you can track information about reporting companies, beneficial owners, flag which entities have the reporting obligation, run visualization reports to see some of what Alli was showing with org charts and kind of looking up the hierarchy to see exemptions and appointments. And there's a lot of power in the technology, so I don't want to undersell it. It's something that you certainly should explore. But ultimately, if you feel like you have your arms around tracking the data, but are simply looking for a filing partner, this is not an obligation. This is not a required element I should say of our beneficial ownership filing service.