The Corporate Transparency Act (the “CTA”) is part of the Anti-Money Laundering Act of 2020, which in turn is part of the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”). The CTA’s purpose is to implement uniform federal ownership disclosure for every company in the United States.
Owners of licensed commercial cannabis businesses are no strangers to ownership disclosure – California regulations require owners and financial interest holders to disclose basic personal information to state agencies for on a yearly basis. However, new laws in effect will require all businesses, cannabis or not, to disclose their ownership to the federal government. The Financial Crimes Enforcement Network (“FinCEN”) is finalizing regulations that will create a database of the owners of every company registered to do business in the United States. This law is the first of its kind. Business owners may soon find themselves announcing their presence in the cannabis market to the federal government, despite the fact that a federal legalization has not yet caught up with state legal businesses.
“The CTA and these proposed regulations represent the culmination of years of efforts by Congress, the Department of the Treasury (Treasury), other national security agencies, law enforcement, and other stakeholders to bolster the United States’ corporate transparency framework and to address deficiencies in BOI reporting noted by the Financial Action Task Force (FATF), Congress, law enforcement, and others.”
The CTA became effective on January 1, 2021, but FinCEN is still in the process of publishing final regulations. The first component, a Notice of Proposed Rule Making, was published on December 8, 2021. In that Notice, FinCEN indicated that they will be splitting their proposed regulations into three separate parts:
All “Reporting Companies” need to file a report with FinCEN disclosing ownership information of the “Beneficial Owners” and “Company Applicants” of the company.
There are 23 types of entities which are excluded from the definition of Reporting Company. However most exceptions are for entities that are already firmly regulated federally: e.g. securities issuers, banks, credit unions, insurance companies, etc. Some cannabis companies may fall into exceptions No. xxiii, “Inactive Entities”, and No. xxi, “Large Operating Companies”
[To find this section in the regulations, CTRL+F “Exemptions. Notwithstanding paragraph (c)(1) of this section, the term “reporting company” does not include:” to find the proposed language]
Blog by Christopher Peel, March 4, 2022
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