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Kimberly Lowe joins Leaders in Law as the exclusive Corporate Law member in Minnesota, USA

Leaders in Law, the leading platform in its field, is delighted to welcome Kimberly Lowe as our exclusively recommended & endorsed Corporate Law expert in Minnesota, USA. Kimberly’s office is located in Minneapolis.

“You will find Kim to be one of the most pragmatic, straightforward and competent lawyers you’ve ever met. Kim is the kind of attorney who nerds out over crafting statutes and standards but also has a personality. She is amazing and super well respected. Her firm Avisen helps taxable and tax-exempt entities so she’s well versed.  If you need a source to refer out to, I can’t think of a more capable attorney than Kim.” -Jessica Birken

Kim has laid the groundwork for social business to thrive in Minnesota. She serves as an unmatched thought leader in Minnesota when supporting innovative business models, and it is because of her leadership that my company, Fair Anita, has been able to incorporate as a Public Benefit Corporation. She has provided incredible ideas, connections, and legal counsel, and I am forever grateful for her support. She brings passion and energy to every project, which makes working with her an absolute delight. I highly recommend Kim as the premiere lawyer in the Twin Cities, and I look forward to working with her in the future.” – Joy McBrien, Women’s Rights Advocate and Entrepreneur

If you require any assistance in this area, please use the contact details provided in Kimberly’s profile below or contact us at info@leaders-in-law.com & we will put you in touch.

Ingrid Y Chen joins Leaders in Law as the exclusive Corporate Law member in Taiwan

Leaders in Law, the leading platform in its field, is delighted to welcome Ingrid Chen as our exclusively recommended & endorsed Corporate Law expert in Taiwan. Ingrid’s office is located in Taipei.

Ingrid is the Partner of DTT Attorneys-at-Law and specialises in corporate investments, mergers and acquisitions (M&A), capital market, banking, securities and insurance law and compliance, and general corporate matters.  She has assisted reputable domestic and foreign companies in accomplishing onshore and offshore investments and M&A transactions, advised clients on the PRC outbound and inbound investment regulations and assisted cross-border companies to obtain Taiwan related approvals.

She also actively participates in the capital market area, representing multiple foreign issuers to raise funds, list their shares on TWSE/TPEx and issue TDRs in Taiwan as well as IPO on HKEX and the PRC.  Ingrid Chen is also familiar with banking, securities and insurance laws and regulations and has assisted clients in compliance and regulatory filings.

If you require any assistance in this area, please use the contact details provided in Ingrid’s profile below or contact us at info@leaders-in-law.com & we will put you in touch.

Chongqing office set to further boost KWM’s presence in China

On 18 March 2021, King & Wood Mallesons Chongqing office officially opened. It is the second office set up by KWM in Southwest China, following Chengdu office, bringing the total of KWM China offices to 14. Located in Liangjiang New Area, Chongqing office obtained the approval for its establishment from Chongqing Municipal Bureau of Justice at the end of October 2020.

Chongqing, a municipality directly under the central government in Southwest China, is the largest industrial and commercial city in the southwestern of the country, an important modern national manufacturing base and a comprehensive transportation hub in the region. In recent years, the construction of the Chengdu and Chongqing Economic Circle has continued, and has been included into the 14th Five-Year Plan. The demand for high-end foreign-related legal services in the region is on the rise. KWM always pays close attention to the development of the economy and legal service market there, and has established its physical presence in Chengdu as early as in 1998. Based on the high reputation and extensive client base already established in Sichuan and Chongqing, the two offices will work together to serve a greater area, assisting more enterprises and institutions in keeping up with the global market trend and seeking cooperation worldwide. They will become the backbones of KWM in the region and even the west part at large.

By taking into consideration of the demands of clients and the market, Chongqing office will in the beginning contribute to the firm’s practice in capital market, corporate, dispute resolution, restructuring & insolvency, and to international cooperation relating to the Belt and Road Initiative, providing clients in the manufacturing, modern agriculture, technology, real estate and infrastructure, cultural tourism and other industries with professional and first-class legal services. The Chongqing team is made up of partners, counsels and associates who have been deeply delved in the regional market for many years. With a wealth of experience, strength and in-depth understanding of various sectors, the team is able to leverage the KWM platform and resources to assist clients in achieving better development locally.

Liu Rong, Finance & Securities

Liu Rong specializes in corporate, securities, and civil and commercial matters. He has more than 20 years of experience in the legal service market in Sichuan and Chongqing, and joined Chengdu office in 1999. Mr. Liu has advised many large and medium-sized SOEs, private enterprises, high-tech companies on their reorganization, restructuring, and merger and acquisition. He has also advised Chinese enterprises on their IPOs and listings on stock markets both in the Mainland and Hong Kong S.A.R. He has served as the counsel for many large SOEs, private high-tech companies and some large foreign-funded enterprises.

Liu Zhizhi
, Corporate

Liu Zhizhi focuses her practice on international construction projects and construction related investment, international trade in technology and goods, and civil and commercial dispute resolution. Ms. Liu knows the business processes of international construction projects and construction related investment, and international trade in technology and goods. She has a deep understanding of FIDIC contract conditions, standard goods procurement and engineering construction contract conditions of the World Bank and the Asian Development Bank, and other widely accepted international construction and engineering contract versions. She has substantial experience in drafting, review and negotiation of international construction contracts and imports and exports of major equipment contracts. She has advised clients on projects in Europe, Southeast Asia, the Middle East and Africa in such areas as railway, locomotive, minerals, power and other energy and infrastructure sectors.

Wang Xin, Dispute Resolution

Wang Xin focuses on M&A financing, real estate, disposal of non-performing assets, etc. Having been deeply engaged in the southwest legal market for many years, Mr. Wang has accumulated a wealth of experience in advising on real estate development, investment in and financing of real estate projects, financial assets M&A, corporate, M&A and restructuring, liquidation and disposal of financial claims and debts, dispute settlement involving atypical and defective warranties, dispute resolution & litigation, among others. He joined KWM at the end of 2020. Thanks to his deep understanding of the legal market environment of Chongqing, he earns a good reputation and rich client resources locally.

Li Baoshan
, Dispute Resolution

Li Baoshan specializes in civil and commercial litigation, arbitration and enforcement, corporate debt crisis resolution, etc. He has gained profound social connections and practice experience in his more than 20 years of dispute resolution experience. His understanding of the judgment thinking and the workflow of courts and arbitration institutions enabled him to provide reasonable and pragmatic solutions for clients. Prior to joining KWM, Mr. Li had been working as a judge entertaining hundreds of civil and commercial cases in the court system for nearly 15 years. After joining KWM, Mr. Li has provided legal services for a number of large SOEs, well-known listed companies and private companies. He is well trusted by his clients.

“We are delighted to announce that Chongqing office is open for business.” said Zhang Yi, Chairman of KWM China Management Committee, “We wouldn’t make it happen without the strong support from leaders at all levels in the Chongqing municipality and Liangjiang New Area and our clients. I would like to extend my sincere gratitude to you all. The establishment of Chongqing Office is an important step in our response to a series of national strategies underscored by the central government, such as further construction of Chengdu-Chongqing Economic Circle, the new western land-sea corridor and inland international financial centers. Chongqing office will continue KWM’s high-quality service and client-centric philosophy. With KWM’s strong legal service network and platforms spanning major cities like Beijing, Shanghai, Shenzhen and Guangzhou and even the whole world, Chongqing office will further contribute to the development of existing and new clients in the Southwestern region by taking root in the local market of Chongqing and fully tapping KWM’s global resources, which will help propel the regional development momentum and comprehensive competitiveness.”

New Dutch legislative proposal on transfer pricing mismatches

A new Dutch legislative proposal has been published for public consultation in order to prevent tax avoidance due to mismatches that relate to transfer pricing. At the same time two other proposals have been filed with respect to Atad2 application and qualification of foreign entities, which will not be covered in this news flash.

The legislative proposal includes a new Corporate Income Tax law article, which targets mismatches that exist because of commercial to tax differences that lead to a lower taxable income without a pick-up in the other jurisdiction. The main reason being that a different system is being applied in the other jurisdiction.
In the Netherlands, the arm’s length principle implies that associated enterprises within a group have to comply with the arm’s length principle for corporate income tax purposes. Commercially, transactions are not always aligned with the arm’s length principle which may lead to commercial to tax differences as a consequence. If other countries involved apply the arm’s length principle differently or not at all, the risk of mismatches arises.

Mismatches may result in double non taxation.
Examples are interest rates, a “step-up” for assets or additional income reported on transactions, which are adjustments to align with the arm’s length principle. This may lead to either an informal capital contribution or a deemed dividend from the perspective of the Dutch company. If such adjustments lead to a lower taxable income in the Netherlands, but not to an equally higher taxable income, pick-up, in the other country(ies) involved, the new article will apply.

According to the newly proposed art. 8ba VPB, the deductibility of for example interest rate adjustments will partly be rejected for negative tax to commercial differences, if the taxpayer is not able to proof that a corresponding upward adjustment is made at the end of the foreign entity. Also downward income adjustments or a “step up” for assets with corresponding depreciation, will only lead to a lower taxable income, if the transactions are declared accordingly in the other jurisdiction. It may also impact back-to-back financials transactions.
It is intended that this new article will come into effect on 1 January 2022.

 

Delaware M&A Quarterly

In The Williams Companies Stockholder Litigation, the Delaware Court of Chancery enjoined a shareholder rights plan adopted by The Williams Companies at the outset of the COVID-19 pandemic.  This “poison pill” had a package of novel features, including a 5% trigger (albeit with a passive investor carve-out) and an “acting in concert” provision that extended to “parallel conduct” between different investors, which together constituted “a more extreme combination of features than any pill previously evaluated” in Delaware. The court, in an opinion by Vice Chancellor McCormick, found that two of the board’s three objectives in approving the rights plan—namely, to prevent shareholder activism and protect against potential “short-termism” generally without any specific threat—were not legally permissible rationales to adopt a rights plan. The board’s third objective—preventing rapid and undisclosed accumulation of shares by activists—was assumed to be permissible under Delaware law, but was found not to justify the highly unusual features included in this particular pill. All that said, the court was clear that the concerns boards typically identify when adopting an activist defense pill—the potential for creeping control from share accumulations and the potential for negative control from an activist hedge fund having a level of share ownership that could give it outsized influence over the company’s decision-making—remain legitimate justifications for adopting a pill, especially when faced with evidence of accumulation. While it is very rare for Delaware courts to enjoin a rights plan, this decision is likely to have very little, if any, effect on market practice or on the ability of Delaware companies to use rights plans to protect themselves from inappropriate and excessive accumulations of shares by activist hedge funds.  For more, click here.

Court of Chancery Allows Aiding and Abetting Claims to Proceed in Pair of Decisions

While noting the high barriers to alleging an aiding and abetting claim, two Court of Chancery decisions denied motions to dismiss where the court found clear evidence of active and knowing misconduct. In the first, Firefighters’ Pension Sys. of the City of Kansas City, Missouri Trust v. Presidio, Inc., the plaintiff alleged that the company’s financial advisor tipped off the third-party acquirer, BC Partners L.P. (“BCP”), regarding a competing bid by Clayton, Dubilier & Rice, LLC (“CD&R”), thereby enabling BCP to bid only slightly higher and to put time pressure on CD&R’s response.  CD&R indicated that it could make a superior offer for the company, but not a binding one on the tight timeframe, and for that reason, among other concerns, the Presidio board accepted BCP’s lesser offer. The court, in an opinion by Vice Chancellor Laster, found that the aiding and abetting claims against both BCP and the financial advisor should survive the motion to dismiss.  The advisor’s failure to inform the board of its tip to BCP created an informational vacuum that led the board to breach its duty of care.  With respect to the claims against BCP, although viable aiding and abetting claims against a third-party bidder are unusual, the court noted that BCP knew the tip was wrong. The court also held that the plaintiff adequately alleged that the Presidio CEO was self-interested in the transaction and that he “steered the sale process” toward BCP because it promised to retain current company management with a potentially lucrative compensation package, while CD&R did not. Moreover, plaintiff sufficiently alleged that the CEO knew and failed to disclose to stockholders that the financial advisor tipped BCP. For the Presidio opinion, click here.

The second decision, In re Columbia Pipeline Group, Inc. Merger Litigation, involved the sale of Columbia Pipeline to TransCanada Corporation. Similar to Presidio, the plaintiffs alleged that the Columbia Pipeline CEO and CFO steered the sale process toward TransCanada and away from other bidders because the CEO and CFO desired to retire in the near-term and they believed that TransCanada would pay cash for the company, while the other bidders would not. Applying heightened scrutiny under Revlon, the Court of Chancery, in an opinion by Vice Chancellor Laster, held that it was reasonably conceivable that the CEO and CFO breached their fiduciary duties by steering the sale process for personal reasons toward TransCanada, including by ignoring TransCanada’s multiple alleged breaches of its standstill agreement, providing confidential information to TransCanada, telling TransCanada it was unlikely to face competition, providing the board with materially incomplete and inaccurate information about the company’s value, delaying the carrying out of board directives, downplaying the interests of other bidders to the board and making a “moral” commitment to TransCanada to only consider fully financed offers from other bidders.   According to the court, these fiduciary duty breaches prevented the sale price from reaching its potential value. In addition, the court held that the complaint adequately pled a claim against TransCanada for aiding and abetting the breaches of fiduciary duty by the CEO and CFO. The plaintiffs’ allegations, taken as true at this stage in the litigation, suggested that TransCanada knew that the CEO and CFO were breaching their fiduciary duties “and sought to take advantage of the situation.” Vice Chancellor Laster observed that there was a “constellation of allegations” supporting the claim, including, to take just one example, the CFO’s “extreme behavior” that involved the CFO literally handing a TransCanada executive, who was also a friend of the CFO, the company’s negotiating talking points and explaining (contrary to the company’s obvious interests and the advice of its professional advisors) that TransCanada’s bid was unlikely to face competition. These and other allegations, “taken together,” supported an inference of knowing participation and allowed the aiding and abetting claim to survive a motion to dismiss. For the opinion, click here.

Delaware Court of Chancery dismisses Caremark Claims Where Directors’ Actions Did Not Amount to Bad Faith

In Richardson v. Clark, the Delaware Court of Chancery, in an opinion by Vice Chancellor Glasscock, dismissed claims alleging that the directors of Moneygram International, Inc. breached their duties of oversight (so-called “Caremark duties”) by ignoring alleged red flags relating to the company’s anti-money-laundering controls. Moneygram, which provides money transfer services, entered into a settlement agreement with federal authorities relating to its alleged noncompliance with anti-money laundering requirements and charges that it aided and abetted wire fraud. The settlement required the company to make a large restitutions payment to injured customers and take other actions to prevent future wire fraud and money laundering. For several years the company complied with the settlement, but ultimately failed, and was eventually forced to extend the settlement agreement and pay an additional sum in restitution. The plaintiff brought Caremarkclaims alleging that the board ignored red flags to ensure that the company complied with the settlement agreement. The court dismissed the claims based on plaintiff’s failure to make a demand on the board, holding that while the directors “may be plausibly accused of feckless oversight and lack of vigor” and “may have been wistless or overly reliant on management” based on the alleged facts, their actions did not amount to bad faith such that they would face a substantial likelihood of liability for unexculpated breaches of the duty of loyalty. For the opinion, click here.

Delaware Directors Cannot be Targets of Derivative Breach of Contract Suit Premised on Alleged Charter Breach

In Lacey v. Larrea, the Delaware Court of Chancery, in an opinion by Vice Chancellor Glasscock, dismissed a derivative breach of contract claim brought against the directors of Southern Copper Corporation that was premised on an alleged breach of the company’s charter. While Delaware law recognizes charters as a contractual arrangement between stockholders and the company that sometimes binds fiduciaries, it was the company itself, acting through the board, that allegedly breached the charter, and therefore the company (on whose behalf the derivative claim was brought) did not have a breach of contract claim against the directors.  The court explained that the relationship between directors and their corporation is typically fiduciary, rather than contractual, and if any derivative claim is created by a failure on the part of the directors to comply with the entity’s formative documents, it is a claim for breach of fiduciary duty. For the opinion, click here.

India & Vietnam: Increasing Trade and Investment Relations

The year 2020 marks the 42nd anniversary of India-Vietnam bilateral trade. Vietnam and India have shared strong bilateral relations historically, and for the past two decades, trade between the two countries has risen considerably. These economic ties have materialized into several Indian investments in Vietnam in various sectors.

The enormous volatility in the global trade environment has pushed businesses into diversifying their supply chains away from China, which has increased the importance of the India-Vietnam trade route for international business.

India, which is one of the fastest-growing economies in the world, currently ranks fifth globally in terms of GDP. The ASEAN-India Free Trade Area (AIFTA), which Vietnam is a part of, was established in 2009 as a result of convergence in interests of all parties in advancing their economic ties across the Asia-Pacific.

Vietnam’s manufacturing industry has rapidly emerged as a highly effective location for incoming electronics and telecom manufacturers who are relocating from China due to increased costs and the US-China trade war. The country has bolstered investor confidence with quick and efficient containment of the COVID-19 pandemic. Vietnam is becoming a leading choice for major companies looking to set up their new manufacturing hubs and diversify their supply chains.

India has significant expertise in IT services, pharmaceuticals, and oil & gas, all of which can significantly benefit Vietnam. Additionally, there are export opportunities in zinc, iron, steel, and man-made staple fibers from India to Vietnam.

A large middle class in India’s 1.3 billion population and its customs-duty exemption for ASEAN products make it a lucrative destination for Vietnamese exports. There is a notable scope for the development of services related to wholesale & retail trade, transportation & storage, business support along with trade opportunities in cotton and knitted clothing.

Bilateral trade

Over the past two decades, bilateral trade between Vietnam and India has steadily grown from US$200 million in 2000 to US$12.3 billion in the financial year 2019-2020.

The two countries aimed to raise bilateral trade to US$15 billion by 2020, but COVID-19 related trade disruption resulted in a 9.9 percent trade shrinkage to US$12.3 billion in the last financial year. Vietnam has emerged as the 18th largest trading partner of India, while the latter ranks seventh among Vietnam’s largest trading partners.

Exports from Vietnam to India include mobile phones, electronic components, machinery, computer technology, natural rubber, chemicals, and coffee. On the other hand, its key imports from India include meat and fishery products, corn, steel, pharmaceuticals, cotton, and machinery.

After India announced its decision to opt-out of the Regional Comprehensive Economic Partnership (RCEP), the India-ASEAN FTA is expected to be reviewed to compensate for the potential trade loss.

Foreign direct investment

Vietnam’s strategic location close to existing manufacturing hubs, its favorable position in accessing other Southeast Asian markets, and its proactive approach towards opening its markets to the world has helped it gain popularity as an attractive manufacturing and sourcing location.

The rising importance of Vietnam in global supply chains has the potential to strengthen India-Vietnam ties further. India is estimated to have invested nearly US$2 billion in Vietnam including funds channeled via other countries. Over 200 Indian investment projects in Vietnam are primarily focused on sectors including energy, mineral exploration, agrochemicals, sugar, tea, coffee manufacturing, IT, and auto components. Several major Indian businesses such as Adani Group, Mahindra, chemicals major SRF, and renewables giant Suzlon have shown interest in venturing into Vietnam.

India’s salt to IT conglomerate Tata Coffee recently inaugurated their 5000 MTPA freeze-dried coffee production plant in Binh Duong province of Vietnam last year. This US$50 million coffee facility was commissioned within 19 months of the ground-breaking ceremony.

Another example is HCL Technology Group, which is considering establishing a US$650 million technology center in Vietnam and plans to recruit and train over 10,000 engineers within the next five years.

With the implementation of major infrastructure projects like Tata Power’s Long Phu – II 1320 MW thermal power project worth US$2.2 billion, the investment figures are expected to rise considerably. The thermal power project was first coined in 2013 and was originally expected to be fully operational by 2022, but the revised seventh Power Development Plan (PDP7) indicates an eight-year delay, shifting its launch to 2030.

This delay appears to be due to Vietnam’s shift toward renewable energy. Nevertheless, opportunities remain for Indian investors in the renewable energy industry, specifically in solar and wind due to increased power demand. Reports indicate that the Tata group is in talks of investing further in solar- and wind-power projects.

Opportunities for Indian investors

Vietnam provides several lucrative reasons to invest such as increased access to markets, favorable investment policies, free trade agreements, economic growth, political stability, low labor costs, and a young workforce. As per a Standard Chartered report on trade opportunities, Vietnam’s exports to India have the potential to grow by 10 percent annually, or approximately US$633 million. This projected growth is primarily focused on goods export (53 percent) and services (46 percent).

Pharmaceutical

Vietnam’s domestic pharmaceutical industry is currently able to meet just 53 percent of the country’s demand, representing significant opportunities for Indian investors as India is among the leading global producers of generic medicines supplying 20 percent of total global demand by volume. There is an enormous potential for Vietnam to purchase generic medicines from India, but the former is actively trying to get Indian pharmaceutical companies to manufacture in Vietnam instead of importing.

Agriculture

Vietnam is seeking alternate buyers for its agricultural exports, after the reduction in demand from China due to the pandemic. Lifting India’s trade barriers on the import of agricultural products can open a new market for Vietnamese agricultural exporters. Also, there is a significant potential for investment in breeding technology, irrigation technology, and storage facilities. Vietnam’s topography, climate, and fertile soil make it suitable for coffee plantations. The TATA group has expressed plans of investing in the installation of agricultural machinery to serve demand in the Mekong Delta.

Tourism

The tourism industry in Vietnam is a largely untapped market sector for Indian businesses, which is likely to gain strong traction after the pandemic. The country received over 15.5 million international arrivals in 2018, a seven-fold increase from 2.1 million in 2000. Over 31,400 Vietnamese visited India the same year, a 32 percent increase from the previous year. India is a preferred destination for Vietnamese pilgrims and medical tourists.

India’s low-cost carrier Indigo launched direct flights linking India’s Kolkata with Vietnam’s Hanoi and Ho Chi Minh City in November 2019. Following this launch, Vietnamese low-cost carrier, Vietjet Air started direct flights connecting India’s New Delhi with Hanoi and Ho Chi Minh City. Improved connectivity will help Vietnam in diversifying its tourism portfolio, which currently is largely dependent on Chinese and South Korean tourists.

SMEs

SMEs play a large role in both India’s and Vietnam’s economies. Most recently, India and Vietnam held a promotion conference titled ‘Boosting trade-investment cooperation opportunities between Vietnamese and Indian SMEs’ organized by Vietnam’s Trade Office of the Vietnamese Embassy in India, India’s Uttar Pradesh state government, the Indian Industries Association (IIA), and Vietnam’s Hanoi SME Association. The takeaway was that several major businesses have shown interest in coming to Vietnam.

The IIA noted that Vietnam is looking to attract investment in sectors such as energy, mineral exploration, agriculture, tea, IT, and automobiles. Nevertheless, challenges remain regarding high corporate income tax rates for specific sectors such as oil and gas.

SMEs contribute close to 40 percent of India’s exports but also need government support to thrive. Indian SMEs will have to further internationalize. For example, India’s Tamil Nadu state has a diversified manufacturing industry dominated by SMEs with a number of factories and special economic zones. However, at the moment, SMEs in Tamil Nadu are yet to connect to business opportunities in Vietnam. This is a missed opportunity. As per ADB such businesses can connect through India’s Market Access Initiative and Market Development Assistance schemes to tap into potential businesses and market sectors.

Apart from streamlining regulatory standards between both countries, both governments will also have to hold seminars, events, and trade fairs to ensure that SME are aware of the various opportunities in the relevant market fields.

Supporting industries

Vietnam is an attractive destination to produce and export, thanks to its assortment of free trade agreements with several countries, allowing products to be exported to these countries with attractive low tariffs. There is a need for the development of the local supporting industry to support major manufacturers, and Indian businesses have the potential to fill the gaps in this sector.

Takeaways

With Vietnam’s strong economic growth in the past few years, a review of the India-ASEAN free trade agreement is necessary to foster further trade in promising emerging sectors between both countries. As per Vietnam’s Foreign Investment Agency (FIA), India had almost 300 projects in Vietnam accounting for almost US$900 million as of December 2020.

As pointed out by the Standard Chartered report, there is considerable scope to increase trade between India and Vietnam should both governments take a proactive approach to trade and investment and realize this potential.

 

Eliza Low named Partner at MDP Law

Melbourne, February 8th, 2021 —Eliza Low was promoted to Partner at mdp Law after six months as Special Counsel.

Eliza’s exposure to large scale, multi-jurisdiction deals as a Senior Associate at Baker McKenzie, combined with her extensive corporate law experience, marked a significant expansion of mdp’s legal capabilities when she joined in September 2020. Read more

Dealing with the New Corporate Transparency Act

The Corporate Transparency Act (the “CTA”) was adopted on January 1, 2021, to combat the laundering of illicit funds through anonymous “shell” companies.

The CTA will require certain corporations and limited liability companies to file reports with the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”), identifying all of the reporting entity’s “beneficial owners.”

Time for Compliance

Although the CTA already is in effect, companies still have time to learn and understand the reporting requirements — they begin only after final implementing regulations are promulgated by the Secretary of the Treasury.  These rules are supposed to be in effect no later than January 1, 2022, and maybe effective sooner given overwhelming bipartisan support for the CTA. Existing companies will have two years to file initial reports, while newly formed companies (or those newly registered to do business in the US) will be required to file an initial report upon formation or registration. In both cases, changes in company beneficial owners must be reported within one year.

Beneficial Owner

Subject to certain exceptions, a “beneficial owner” is defined in the CTA as “any 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 percent of the ownership interests of the entity.” Although the CTA does not define “substantial control,” FinCEN probably will clarify that phrase with implementing regulations or other guidance.

Note that “applicants” who file an application to form an entity covered by the CTA (or register a covered foreign company to do business in the U.S.) must report the same information as beneficial owners.­

Reporting Requirements

Information Required:  The information to be reported for each beneficial owner is simple:

  • full legal name;
  • birth date;
  • residential or business street address; and
  • a unique identifying number from an acceptable identification document;
    • U.S. passport;
    • state driver’s license;
    • another state-issued identification document; or
    • a current non-U.S. passport for individuals who do not hold any U.S.-issued identification documents.

Exclusions:  As the CTA is primarily targeted at shall companies, it excludes broad categories of publicly traded, regulated, nonprofit and government entities. It also excludes any company that:

  • employs more than 20 full-time employees in the United States;
  • annually reports more than $5 million in gross receipts or sales to the IRS; and
  • has an operating presence at a physical office within the U.S.

Confidentiality

No information FinCEN collects is to be made publicly available. The CTA even imposes penalties for unlawful disclosure of reported information. In keeping with its purpose, however, the CTA allows FinCEN to disclose beneficial ownership information, upon request, to:

  • federal law enforcement agencies, including those requesting information on behalf of a non-U.S. law enforcement agency;
  • with the consent of the reporting company, to certain financial institutions; and
  • state, local, and tribal law enforcement agencies pursuant to court order.

Penalties

Willful failure to report, or the submission of a report containing false or fraudulent information, is subject to a penalty of $500 per day, and/or a maximum penalty of $10,000 and up to 2 years imprisonment. Even if incorrect information is reported, however, no penalty will be imposed if such information is “voluntarily and promptly” corrected within 90 days.

Further Information

If you have questions regarding whether your company will be required to comply with the CTA, the time to act is now.

ARTICLE BY

Michael E. Kohagen
Ward and Smith, P.A.