The Corporate Transparency Act and Financial Crimes Enforcement Network
The Corporate Transparency Act (CTA) was passed by Congress in 2022 and took effect on January 1, 2024. Its main purpose is to increase corporate transparency by mandating certain companies to disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). It requires reporting names, addresses, and birthdates of individuals with significant control or ownership in the company. The objective is to combat money laundering, terrorism financing, and other illicit activities by preventing the misuse of anonymous shell companies. The CTA establishes a centralized database to aid law enforcement and financial institutions in identifying and addressing financial crimes through improved visibility into corporate ownership structures.
How Does This Affect Your Association?
While the CTA is intended to prevent money laundering and terrorist activity, it does require business entities to report to FinCEN, including all Condo and Homeowner’s Associations. Associations throughout the United States must register.
The deadline to register and submit the required information is January 1, 2025. The information may be submitted electronically at www.fincen.gov/boi
See below for more specifics:
This letter is being sent ... to place the Directors of each association on notice of their obligations under the Corporate Transparency Act (hereinafter, the “CTA”). Simply stated, the CTA is a federal law requiring the disclosure of certain information to the U.S. Treasury Department by most corporate entities operating in the United States. Both condominium associations and homeowners’ associations are not-for-profit corporations, and therefore fall into this category – referred to as “reporting companies” in the language of the CTA.
The CTA requires that a “reporting company” (i.e., an association) provide the following information to FinCEN, the Financial Crimes Enforcement Network, of the U.S. Treasury Department:
- its full legal name
- any trade name or assumed name
- address of its current principal place of business in the United States or the street address of its primary business location in the United States
- the jurisdiction of formation or registration
- U.S. federal tax identification number or a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction
In addition, the “reporting company” must also identify each “beneficial owner,” as well as the “company applicant” by providing the following information for each:
- full legal name
- date of birth
- current residential or business street address
- a scanned copy of an acceptable identification document (e.g., driver’s license or nonexpired passport)
A “beneficial owner” is defined by the CTA as: (i) each individual, if any, who directly or indirectly owns 25% or more of the equity interests of a legal entity customer; and (ii) a single individual with significant responsibility to control, manage, or direct a legal entity customer, including an executive officer or senior manager or any other individual who regularly performs similar functions.
A “company applicant” is defined by the CTA as an individual who:
- files an application to form a corporation, limited liability company, or other similar entity under the laws of a State or Indian Tribe
- registers or files an application to register a corporation, limited liability company, or other similar entity formed under the laws of a foreign country to do business in the United States by filing a document with the secretary of state or similar office under the laws of a State or Indian Tribe
If another individual directs or controls the filing of such documentation, that individual must also be listed as a company applicant. Company applicants are required to be reported only if the entity is formed or first registered to do business in the United States on or after January 1, 2024. Because your associations are already formed and operating as corporate entities, there should be no need to report a company applicant.
As stated above, however, a “beneficial owner” is an individual “with significant responsibility to control, manage, or direct a legal entity customer, including an executive officer or senior manager or any other individual who regularly performs similar functions.” This would include each of the directors of the association, and it is therefore required that the above-described information be disclosed to FinCEN.
Failure to comply with the CTA reporting requirements could result in significant penalties including fines of up to ten thousand dollars ($10,000.00) and/or imprisonment of up to two (2) years. The deadline to submit the required information is January 1, 2025. The information may be submitted electronically at www.fincen.gov/boi.
It should be noted that there are exceptions to the reporting requirements, however, condominium and homeowners’ associations do not currently fall under one of the 23 existing exceptions. There are efforts being made to change this and add condominium and homeowners’ associations to the list of exceptions so that they do not have to report. As of the date of this correspondence, however, this is not the case, and the boards of our client associations should not rely on a potential change to the existing law as it is currently written.
Allied Can Help
While registering with a federal organization may seem complex, as a client of Allied Property Group, we’re here to help. Should you run into complications, have questions, or just need clarification, our team of experts is at your disposal. Don’t hesitate to reach out.