Many companies, including investment advisers, may not be aware that they will soon be required to report detailed information relating to their owners to the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) pursuant to the Corporate Transparency Act beginning in January 2024, and failure to report in a timely fashion can lead to potentially significant hefty fines and, for willful violations, imprisonment.
The Corporate Transparency Act (CTA) aims to combat financial crimes, such as money laundering, terrorist financing, and other illicit activities, by increasing transparency in the ownership of entities such as corporations and limited liability companies. It does this by requiring these entities to disclose information about their beneficial owners to FinCEN. This initiative is intended to prevent the misuse of anonymous shell companies for illegal purposes and enhance the ability of law enforcement and regulatory agencies to investigate and deter financial crimes.
So how does this impact investment advisory firms?
Like other entities, investment advisers organized as corporations, limited liability companies, etc. will need to report information about their owners to FinCEN beginning January 1, 2024 unless there is an available exemption. While SEC-registered investment advisers and advisers that avail themselves of the venture capital adviser exemption found in Section 203(l) of the Investment Advisers Act of 1940 are themselves exempt from the reporting requirements, that does not mean that their affiliated entities, or other investment advisers, such as those advisers relying on the private fund adviser exemption found in Section 203(m) of the Advisers Act or state-registered investment advisers are exempt from such reporting requirements.
As such, it’s vital that advisers conduct a thorough analysis as to whether their entities are subject to the reporting requirements under the CTA and, if not, to ensure they are prepared to file beneficial ownership reports when the time comes.