Do you operate or own an entity (LLC, Partnership, Corporations, etc) in the United States? Heads up, there are big changes coming to what’s expected of you this year.

 

The Corporate Transparency Act (CTA) was passed in December 2020 as part of the National Defense Authorization Act for Fiscal Year 2021, and came into effect in January of 2024. It’s crucial to consult with legal counsel or refer to official government sources for the latest information and compliance requirements.

The Anti-Money Laundering Act of 2020, which is part of the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”) and includes the Corporate Transparency Act, became law effective with Congress’ override on January 1, 2021 of former President Trump’s veto of the NDAA. 1

 

Purpose of the CTA and FinCEN

The Corporate Transparency Act aims to enhance transparency and prevent the misuse of anonymous shell companies for illicit activities, such as money laundering and terrorism financing.

The CTA requires certain entities (each defined as a “reporting company”) to file, in the absence of an exemption, information on their “beneficial owners” with the Financial Crimes Enforcement Network (“FinCEN) of the U.S. Department of Treasury (“Treasury”). The information will not be publicly available, but FinCEN is authorized to disclose the information:

• to U.S. federal law enforcement agencies,
• with court approval, to certain other enforcement agencies,
• to non-U.S. law enforcement agencies, prosecutors or judges based upon a request of a U.S. federal law enforcement agency, and
• with consent of the reporting company, to financial institutions and their regulators.

 

For more than a decade, the US Congress has made efforts to implement beneficial ownership reporting for business entities, referencing similar programs that have proven to be very effective in Europe. When fully implemented in 2024, it will create a database of beneficial ownership information within FinCEN. The purpose of the database is to provide the resources to “crack down on anonymous shell companies, which have long been the vehicle of choice for money launderers, terrorists, and criminals.”

For an even deeper view of the origination of the Act, take a look at this article by the American Bar Association.

 

Covered Entities

The CTA primarily applies to “reporting companies,” which include corporations, limited liability companies (LLCs), and similar entities formed under state law, with some exceptions. However, the specific criteria and thresholds for determining which entities are subject to the CTA may vary, and it is essential to review the official regulations or consult legal counsel for precise details.

 

Beneficial Ownership Reporting

Reporting companies will be required to disclose information about their “beneficial owners” to FinCEN. Beneficial owners are individuals who directly or indirectly own or control a significant percentage of the entity. The CTA mandates reporting the full legal name, date of birth, residential or business address, and a unique identification number (such as a driver’s license or passport number) for each beneficial owner.

 

Reporting Obligations

Reporting companies must file initial beneficial ownership reports with FinCEN within a specified period after the enactment of the CTA (the exact timeframe should be verified). They must also provide updates to FinCEN regarding any changes to the reported information within a designated time frame.

 

Confidentiality and Access to Information

The beneficial ownership information collected by FinCEN will be maintained in a confidential, secure database. Access to the information will be restricted to specific authorized entities, such as law enforcement agencies and financial institutions conducting due diligence in accordance with anti-money laundering regulations.

 

Penalties for Non-Compliance

The CTA imposes penalties for non-compliance with reporting obligations, including civil monetary penalties and potential criminal penalties for willful violations.

Entities existing before January 1, 2024 must comply by December 31, 2024. Any new entity formed after January 1, 2024 must comply within 30 days of formation. Failure to report this information will result in a fee of up to $591/day and possible criminal penalties – yes, you read that correctly.

 

Conclusion

Given that the CTA is a brand new law, additional guidance and regulations may be issued to clarify certain provisions and procedures and information about it is developing every day. Staying informed about updates, compliance deadlines, and reporting requirements from reliable sources, such as FinCEN or legal professionals familiar with the CTA, is crucial to ensuring continued compliance with the law.

It’s essential to consult with legal counsel who specializes in corporate compliance and is up-to-date with the latest information on the CTA to understand the specific requirements and obligations applicable to your entity in 2024.