Corporate Transparency Act's Impact on Loan Transactions: Pre-Closing Due Diligence, Legal Opinions, Loan Documentation

Description

Since Jan. 1, 2024, the CTA has required certain U.S. and foreign entities defined as "reporting companies" to report certain identifying information about themselves, their beneficial owners, and, in some cases, company applicants to FinCEN (the U.S. Dept. of the Treasury's Financial Crimes Enforcement Network) within a certain prescribed time period. FinCEN is tasked with establishing and maintaining a database of beneficial ownership information (BOI) and issued a final rule governing access to the database. The final rulemaking implementing the CTA is expansive and, lenders must understand their potential compliance obligations under the CTA and amend their loan processing procedures and documentation accordingly.

The CTA is part of a growing trend to require greater transparency in beneficial ownership of state-registered entities. Both New York and Pennsylvania have enacted similar reporting requirements as the CTA and a California bill is currently under consideration.

Lenders should be aware of the new BOI rule of the CTA and similar state requirements and continue to take steps to confirm compliance. Such steps should include adding confirmation of CTA compliance to pre-closing due diligence procedures, including representations, warranties, and covenants in loan documentation that borrowers and guarantors have complied with the requirements of the CTA, and providing clauses in loan documents whereby the borrower gives consent for FinCEN to disclose applicable information to the lender.

Listen as our expert panel discusses the impact of the CTA and similar state laws on loan transactions. The panel will shed light on the various complexities, inquiries, and subtleties concerning the practical implementation of the CTA during pre-closing due diligence, closing, and the life of a loan.