Who is a beneficial owner and/or an applicant?
A beneficial owner is defined as an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise exercises substantial control over an entity or owns or controls at least 25% of the ownership interests in an entity. A few notable exceptions from the Act include:

-- Minors, provided that information with respect to a parent is otherwise reported; 

-- An individual acting as nominee, intermediary, custodian or agent on behalf of another individual; 

-- Persons who control an entity solely because of their employment; 

-- An individual whose only interest in a reporting company is through a right of inheritance; and 

-- An applicant is defined broadly as an individual who files an application to form an entity.

What information must be reported and when?
The report shall include the name, date of birth, current address and unique identifying number from an acceptable document for each beneficial owner and/or an applicant, with an option for such individuals to request and use a FinCEN unique identifying number instead. Existing entities will be required to report this information within two years of the effective date, which regulations promulgated within one year of enactment will determine. The report will be required for newly formed entities at the time of formation. Finally, a reporting company will need to update the information provided to FinCEN upon a change in beneficial ownership.
 

Where is the information stored and who has access to it?
FinCEN will store the information received pursuant to the Act in a private database not accessible to the public. The information will be made available to Federal and state law enforcement agencies pursuant to an appropriate request - state law enforcement requests require court approval. The Department of the Treasury, the custodian of the records through FinCEN, has its own broad and separate authorization to use the information, including for purposes related to tax administration. Foreign law enforcement also may request information from the database through an appropriate agency of the federal government - but the information will not be subject to any automatic reporting or exchange of information. Finally, financial institutions will have access to the database for customer due diligence purposes.

Customer due diligence requirements for financial institutions will be updated to conform to the requirements of the Act and to take into account access by financial institutions to the information compiled under the Act. This means that the establishment of any entity account with a financial institution likely will require compliance, by the entity, with the Act – providing a practical barrier to non-compliance.

What are the penalties for violating the law?
The willful failure to provide complete and/or updated information required under the Act or willfully providing false or fraudulent information carry steep civil and criminal consequences. Violations carry civil penalties of up to $500 per day that the violation continues and criminal fines up to $10,000 and/or imprisonment for up to two years. The obligations under the Act apply to beneficial owners and to applicants. The unauthorized disclosure of information collected under the Act carries the same civil penalty but a higher criminal penalty of up to $250,000 and a higher maximum term of imprisonment of five years.

Unauthorized disclosure includes both a disclosure by a government employee and a disclosure by a third-party recipient of information under the Act.

Insights
Unregistered foreign entities. Notably, the Act does not require disclosure of the beneficial owners of a foreign entity if the entity does not register to do business with a state. Presumably, an individual may still be able to access anonymously the US financial or real estate markets using a foreign entity that does not register to do business in a state. It will be interesting to see how the changes to the customer due diligence requirements for financial institutions will affect entities that are not required to file reports under the Act.

Impact. The Act goes a long way in preventing the misuse of entities to hinder the efforts of law enforcement to combat money laundering. The Act includes a provision prohibiting the issuance of any type of certificate evidencing ownership of such entity in bearer form – a longstanding target of anti-money laundering initiatives. The Act captures indirect ownership; for example, a limited liability company formed by a foreign corporation should have to report the information of a non-US person shareholder of the foreign corporation.

It remains to be seen how the regulations promulgated under the Act will deal with ownership of a reporting company by trusts, estates and other complex structures commonly used to meet the multijurisdictional requirements of private clients and their families.
 
For example, if a corporation is wholly owned by a bank as trustee, does the exception for entities owned by other exempt entities eliminate the disclosure requirements for the corporation? How would ownership and/or control be measured with respect to discretionary beneficiaries of trusts? Will the relatively new customer due diligence rules with respect to entities be looked to as a model or will the Report of Foreign Bank and Financial Accounts FBAR rules be used as a standard ? Using the customer due diligence regulations as a guide, if a trust owns more than 25 per cent of the equity interest in a company, the trustee would be considered the beneficial owner, regardless of whether the trustee is a natural or legal person ; see also Financial Crimes Enforcement Network, FIN-2018-G001, Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions . 

Presumably, the beneficial owner requirements in the Act will go further than the customer due diligence regulations; it will be interesting to see how they approach some of these questions.

Conclusion
The Corporate Transparency Act represents an important step in the right direction for the United States in the battle against money laundering and terrorist financing. It brings the United States into compliance with international anti-money laundering standards, which is an area where the United States – a pioneer of the anti-money laundering space – has arguably fallen behind.