Corporate Transparency Act

Starting January 1, 2024, the Corporate Transparency Act (CTA) takes effect with a primary objective to establish a reporting mandate for a wide range of U.S. and foreign-based entities and trusts. The core purpose of the CTA is to strengthen the ongoing battle against complex financial crimes and corruption, encompassing everything from money laundering, tax evasion, corruption, terrorist financing, and even human trafficking.

The CTA, which builds upon the Anti-Money Laundering Act of 2020, is a significant step forward in promoting financial integrity and transparency. However, it also imposes additional responsibilities on small and medium-sized businesses, necessitating the collection, reporting, and ongoing monitoring of certain information to ensure compliance with its provisions.

One of the primary requirements under the CTA is the filing of a Beneficial Ownership Information Report (BOIR) with the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). The purpose of this report is to gather data to help authorities identify the true owners or controllers of a business entity. Failure to comply with the CTA can result in both civil ($500-a day-penalty, up to $10,000) and criminal penalties (up to two years’ imprisonment), underscoring the urgency for all businesses to adhere to the law.

Who Must Report?

The CTA defines a “reporting company” as any new or pre-existing domestic or foreign entity, such as corporations, LLCs, partnerships, and trusts, that are registered to do business in the United States.

This means that any registered entity formed by filing documents with a secretary of state or similar state or tribal office falls under the purview of the CTA reporting requirements. Find the FinCEN’s list of exempt entities here.

What Is A Beneficial Owner?

A beneficial owner is defined as either a) someone who owns or controls 25% or more of the reporting company’s ownership or b) someone with “substantial control” over the reporting company. Substantial control refers to an individual who serves as a senior officer in the company, holds authority over the appointment or removal of any senior officer, or commands significant influence over crucial matters pertaining to the reporting company.

What To Report?

Reporting companies must disclose specific information about their beneficial owners, including their full legal name, date of birth, residential address, and “a unique identifying number from a non-expired passport issued by the United States, a non-expired personal identification card, or a non-expired driver’s license issued by a State.”

Where And When To File?

To streamline the process, the BOIR will be filed online on FinCEN’s website. It’s important to note that the website for filing has not yet been released. For existing reporting companies, the deadline to register their BOIR with FinCEN is January 1, 2025, providing ample time for compliance. For new reporting companies formed after January 1, 2024, they will have a 90-day window from the date of formation to file their BOIR.

By demanding greater disclosure of beneficial ownership information, the CTA seeks to create a more robust framework for combating financial crimes while safeguarding legitimate business interests. Though this new process is a crucial step toward curbing financial crimes, it will create challenges for businesses and trusts alike. Businesses may face resource constraints, complexity in reporting, difficulties in data collection and verification, and compliance deadlines. To overcome these hurdles, seeking professional guidance, allocating adequate resources, implementing robust internal processes, and staying informed about regulatory updates are essential steps.

This article is for informational purposes only and is not intended to be a substitute for legal advice. No representation or warranty is made and we specifically disclaim any representation or warranty regarding the information provided hereinafter.

For more information and facts about the CTA and its requirements, call us to assist with the filing of your BOIR or visit the FinCen’s website at www.fincen.gov/boi.

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