Understanding the reporting requirements for art holdings under the Corporate Transparency Act

As many of you have probably heard by now, beginning on January 1, 2024, corporations, partnerships and limited liability companies formed in the United States, and non-US entities registered to do business in the United States, will be required to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of the Treasury. The Corporate Transparency Act (CTA), which was enacted as part of the National Defense Authorization Act of 2020, imposes this new requirement in an effort to combat corruption, money laundering and the financing of terrorism in the United States. The CTA's goal is to render shell corporations transparent by forcing disclosure of the identity of the natural person who controls or owns the entity.

What this Reporting Requirement Means for Your Art Holdings

Many collectors own art through various entity structures. Privacy is one of a number of reasons collectors choose an entity as the ownership structure. Therefore, we felt it was relevant to bring to your attention these new reporting requirements not only for compliance purposes but also as an opportunity for you to revisit whether your current entity structure will best meet your art purchasing and ownership needs going forward.

Who is Covered

Entities that are required to report beneficial ownership information to FinCEN are deemed "reporting companies" and include corporations, limited liability companies, or similar entities that (i) were created by filing a document with the secretary of state in any state or jurisdiction, or (ii) were formed under the laws of a foreign country and registered to do business in the United States. Beneficial ownership of a reporting company held within a trust will have to be disclosed to FinCEN as well. Entities that are not required to report beneficial ownership information to FinCEN include banks; any entity registered with the US Securities and Exchange Commission; 501(c) non-profit corporations; and any entity that employs more than 20 people on a full-time basis, files tax returns showing over $5 million in gross receipts, and has a physical presence within the United States.

Who is a Beneficial Owner

The CTA defines a beneficial owner as an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (i) exercises substantial control over the entity, or (ii) owns or controls not less than 25% of the ownership interest. A beneficial owner does not include (i) minor children, if the information of their parent or guardian is reported, (ii) an individual acting as a nominee, intermediary, custodian or agent, (iii) an employee, acting solely as an employee, whose substantial control or economic benefits from such entity are derived solely from the employment status of the employee and who is not a senior officer, (iv) an individual whose interest in such entity is through a right of inheritance, or (v) a creditor of the entity, unless that person owns more than 25% of the ownership interest or exercises substantial control over the entity.

What Information Must be Reported

The CTA requires reporting companies to disclose five pieces of information to FinCEN for each beneficial owner:

• The beneficial owner's full legal name
• Date of birth
• Current residential or business street address
• A unique identifying number from a government-issued document (e.g., passport, driver's license)
• An image of the document that contains the identifying number

Although a company's beneficial ownership information must be disclosed, there is no requirement that the company's assets, such as its art holdings, be reported.

Who Will Have Access to Your Information, and How it Will be Used

Your beneficial ownership information will be stored in a secure database maintained by FinCEN. The information will not be publicly available or accessible. FinCEN is authorized, however, to disclose your beneficial ownership information to (1) federal agencies engaged in national security, intelligence and law enforcement; (2) state law enforcement agencies pursuant to court order; (3) the US Department of the Treasury; (4) financial institutions, but only with the reporting company's consent; (5) government regulators of financial institutions; and (6) certain foreign authorities requesting information through a US agency.

Timing

The CTA is retroactive and applies to entities formed prior to as well as after the effective date of the CTA. It is anticipated that over 32 million entities in the United States will be subject to compliance under the new law. Reporting companies created or registered before January 1, 2024, will have one year—until January 1, 2025—to file their disclosures with FinCEN. Reporting companies created or registered after January 1, 2024, will have 30 days after receiving notice of their creation or registration to comply (FinCEN has proposed extending the deadline to 90 days).