Corporate Transparency Act Clauses
(Credit Agreement)

Summary

These clauses may be included in the representations, warranties, and covenants of a credit agreement to address the requirements on the borrower and the lender to collect and review beneficial ownership information of the borrower and other loan parties under the Corporate Transparency Act and the rules and regulations promulgated thereunder ("CTA"). These clauses include practical guidance and drafting notes. The CTA, 31 USCS § 5336, includes significant changes to the Bank Secrecy Act ("BSA") and U.S. anti-money laundering ("AML") laws. Effective January 1, 2024, the CTA imposes extensive new requirements for U.S. "reporting companies" to report certain beneficial ownership and control information (referred to as the "BOI Rule") to the Financial Crimes Enforcement Network ("FinCEN"). The information collected under the BOI Rule is being maintained in a registry accessible to FinCEN, certain governmental agencies, and certain financial institutions. The objective of the new changes is to further thwart money laundering and other illegal activity. Since 2018, financial institutions have been required to collect beneficial ownership information on their customers under existing customer due diligence requirements (referred to as the "CDD Rule"). The BOI Rule requires a broader collection of information than the CDD Rule, but more entities are exempt from the requirements of the BOI Rule than the CDD Rule. Notably, among other entities, large operating companies are exempt from being "reporting companies" under the BOI Rule, since they already report information through other requirements. The BOI Rule and the CDD Rule have yet to be synchronized, so financial institutions collect customer beneficial ownership information on large borrowers, but such information does not need to be reported to the FinCEN registry since such borrowers are exempt from the CTA. Due to the existing CDD Rule, most credit agreements from financial institutions already contain provisions for the lender to collect beneficial ownership information from borrowers, guarantors, and affiliates. Under the CTA, however, if the borrower is a smaller company subject to the reporting rules, the lender may want to include more specific CTA provisions. Financial institutions also need to obtain the consent of a customer in order to access its information in the FinCEN registry. Lenders may even want to access the registry to satisfy the CDD Rule for large borrowers that are exempt from the BOI Rule. As the CTA becomes more fully implemented and in step with the CDD Rule, parties may determine more standard language for their credit agreements. These clauses are an example of provisions to include in a credit agreement to more specifically address the requirements of the CTA for a borrower that is a "reporting company" under the CTA. The credit agreement may already contain other provisions regarding the BSA and AML, so incorporate parts of these clauses as needed. Capitalized terms, sections, number of borrowers, guarantors, and lenders, and whether the loan is syndicated should be conformed to the relevant credit agreement. For further guidance on the CTA, see Expert Interview: The Corporate Transparency Act – Practical Implications for Real Estate Investors, The Corporate Transparency Act and Beneficial Ownership Reporting Requirement, and Corporate Transparency Act Regulations and Guidance Tracker. For further guidance on the BSA and AML requirements, see Bank Reporting Requirements under the Bank Secrecy Act and OFAC Sanctions Laws and Bank Secrecy Act, USA PATRIOT Act, AMLA, OFAC, and other Anti-money Laundering / Anti-terrorism Regulations. For a template of a bilateral loan and security agreement, see Loan and Security Agreement (Bilateral). For general representations and warranties clauses for a credit agreement, see Representations and Warranties Clauses (Credit Agreement).