Unless exempt, domestic and foreign entities are required to report to FinCEN if they are “created by the filing of a document” or “registered to do business by the filing of a document” with a secretary of state or similar office in any U.S. state or tribal jurisdiction. This will sweep in various corporations, limited liability partnerships and companies, general and limited partnerships, and even business trusts. Trusts will typically not be covered by the rule, as they are generally created by a trust agreement or deed rather than a state filing. Under the CTA, entities required to report are known as “Reporting Companies.” 

Company Applicants will include (1) the individual who directly and physically files the document that creates a domestic entity or registers a foreign entity, as well as (2) the individual who is primarily responsible for directing or controlling such filings.

Company Applicants will be permitted to use their business address if they are exclusively serving as a Company Applicant during business. However, each individual is permitted to hold only one FinCEN ID. Thus, if for any reason an individual needs a FinCEN ID for nonbusiness purposes (i.e., they are a Beneficial Owner of an entity in their personal capacity), then they will be required to report their residential address.

The Company Applicant is not (necessarily) the person who files the CTA report. They may undertake no services whatsoever in relation to CTA reporting notwithstanding their role in forming the entity. Company applicants’ details—or FinCEN ID—must be reported in the entity’s CTA report by whomever files it and will be available to law enforcement as potential contacts in relation to future questions regarding the Reporting Company’s activities.

Reporting Companies formed prior to January 1, 2024, will not be required to report Company Applicants.

CTA violations can trigger civil penalties of $500 per day for each day a violation is outstanding (up to a maximum of $10,000) and criminal penalties of up to two years’ imprisonment.

The CTA does not provide for penalties in the case of negligent failures. Penalties apply only to willful violations. A “willful” violation could include circumstances involving “willful blindness” or “conscious disregard” that leads to a failure to file or filing of false or misleading information, substantially expanding the potential for inquiries and enforcement.

Any person (including entities) involved in the filing process can be liable if they willfully (or with willful blindness) provide or attempt to provide false or fraudulent information to FinCEN in a CTA report (including a false or fraudulent identifying photograph or document) or fail to report complete or updated information to FinCEN. Violations can be direct or indirect. Under the CTA, liability runs to any person who can be said to have (willfully or with willful blindness) “caused the failure” or, regarding failures to file, “was a senior officer of the entity at the time of the failure.” We are unlikely to see significant civil enforcement under the CTA in the near term. Initially, FinCEN’s resources will likely be focused on public education, resolving ambiguities through issuance of CTA-related guidance, and addressing inevitable logistical and technological hurdles relating to the use of the CTA reporting database.

But this does not suggest CTA enforcement will be sparse. We should expect to see both civil enforcements pursued by FinCEN and criminal enforcement actions by the U.S. Department of Justice (DOJ) once CTA administration is in hand. As always, prosecutors will have the benefit of hindsight.

When FinCEN and the DOJ turn to CTA enforcement, we will likely see enforcement action tied to underlying misconduct or significant systemic failures to file. The CTA does not appear intended to focus on technical violations, given that there is no provision for liability for negligent violations and given the limited resources of relevant regulators.

Moving forward, affected enterprises should consider the following steps to mitigate risks and burdens relating to CTA compliance: 

1. Develop and implement a CTA compliance policy. It will be critical to keep detailed records regarding CTA compliance decisions and to adopt and consistently apply an organization-wide policy.  
2. Evaluate opportunities to maximize reporting efficiencies through reorganization. Enterprises may want to adopt a policy that addresses new entity formations to maximize the advantages of CTA exemptions and streamline CTA reporting. Companies may further consider opportunities to reevaluate their corporate organization structure to maximize reporting efficiencies and minimize the burden of CTA reporting. 
3. Inventory existing entities. Larger corporate organization structures and enterprises such as family offices, corporate service providers, accounting firms, and law firms administering many entities should consider adopting a process for inventorying, evaluating, and gathering required information for all affiliated entities under their administration that were formed prior to January 1, 2024, to meet the January 1, 2025, reporting deadline. 
4. Obtain and require FinCEN identifiers. For organizations involving multiple subsidiaries, obtaining FinCEN identifiers will streamline reporting. Reporting Companies should consider encouraging or even requiring their CTA reportable Beneficial Owners to obtain and use FinCEN IDs in employment agreements and other relevant contracts.