More than two million corporations and limited liability companies are created in the United States every year. Only a handful of these entities are subject to public disclosure of details of their activities, either for the protection of investors or as part of regulating particular industries. Concerned that most U.S. states do not require reporting of information on the beneficial ownership of these entities, and that “malign actors seek to conceal their ownership” of these entities to “facilitate illicit activity, including money laundering, the financing of terrorism, proliferation financing, serious tax fraud, human and drug trafficking, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption,” the CTA requires the U.S. Treasury Secretary to establish a comprehensive database of information identify the organizers and beneficial owners of all entities, including entities already existing. This law will affect private aircraft owners, because most often private aircraft are owned by closely-held entities.
On September 30, 2022, the U.S. Treasury Secretary, through the Financial Crimes Enforcement Network (FinCEN) published a final rule to implement the CTA that goes into effect on January 1, 2024. For entities formed on or after January 1, 2024, information on the individual organizer of the entity and the individual beneficial owners must be reported to FinCEN within thirty days of formation. For pre-existing entities, information on the organizer of the entity and the beneficial owners must be reported by January 1, 2025. Any changes in previously reported information must be filed with FinCEN within 30 days.
Individual information will include name, date of birth and current address, the number of a non-expired passport or government identity document, and an image of the document. The report must disclose information for individual organizers and persons who “exercise substantial control” or have more than 25 percent of the ownership interests in the entity.
There are several types of companies that are not required to report, such as SEC-reporting companies, banks and depository institutions, broker-dealers in securities, insurance companies, and other regulated entities. It also does not apply to tax-exempt organizations. Also exempt are companies that employ more than 20 full-time employees, have more than $5 million in U.S. gross income, and have an operating physical presence in the U.S. are exempt. Companies that are mostly dormant are also exempt from reporting requirements.
FinCEN is required to maintain the information in a secure database that is not accessible to the public. FinCEN may disclose information for federal, state or local law enforcement purposes, and to financial institutions for purposes of compliance anti-money laundering laws.
The CTA contains criminal and civil penalties for knowingly or intentionally filing false reports.
Starting January 1, 2024, be prepared to report to FinCEN additional information relating to the ownership of new entities you form, whether for aircraft ownership or otherwise.
The information in this article is intended to highlight potential issues with aircraft ownership and operations and is therefore general in nature. Please feel free to contact one of our experienced aviation attorneys directly to discuss your specific business/personal needs.