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- The Corporate transparency Act (CTA), enacted as part of the Anti-Money Laundering Act of 2020, requires most U.S.
- Prior to the CTA, the lack of readily available information about who ultimately owned and controlled companies facilitated illicit activities like money laundering, tax evasion, and fraud.
- Such as, on December 13, 2023, FinCEN issued its final rule detailing the requirements for reporting under the CTA, including the types of information to be reported and...
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What is teh Corporate Clarity Act (CTA)?
Table of Contents
The Corporate transparency Act (CTA), enacted as part of the Anti-Money Laundering Act of 2020, requires most U.S. companies to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN).
Prior to the CTA, the lack of readily available information about who ultimately owned and controlled companies facilitated illicit activities like money laundering, tax evasion, and fraud. The CTA aims to combat these issues by creating a centralized database of beneficial ownership information, making it easier for law enforcement and financial institutions to identify and investigate suspicious activity. The law doesn’t create a public database; access is restricted to authorized recipients like federal agencies, law enforcement, and, wiht specific court orders, financial institutions.
Such as, on December 13, 2023, FinCEN issued its final rule detailing the requirements for reporting under the CTA, including the types of information to be reported and the filing procedures. FinCEN’s final rule outlines the specific obligations for reporting companies.
Who Must Comply with the CTA?
Most U.S. entities, including corporations, limited liability companies (LLCs), and other similar entities created or registered to do business in the United States, must comply with the CTA.
However, there are 23 exemptions to the CTA reporting requirements. These exemptions include companies that are already subject to significant regulation, such as banks, credit unions, insurance companies, and publicly traded companies. small operating companies that meet specific criteria – including having less than $5 million in gross receipts and not having a physical presence outside the U.S. – are also exempt. The exemptions are detailed in FinCEN’s guidance on exemptions.
As of January 1, 2024, reporting companies created in 2024 or later are required to file their initial reports within 30 days of formation. Companies created before January 1, 2024, have until January 1, 2025, to file their initial reports. FinCEN’s BOI filing deadlines provide a clear timeline for compliance.
What Information Must Be Reported?
Reporting companies must submit information about their beneficial owners – individuals who directly or indirectly own or control at least 25% of the company – and company applicants.
Beneficial owner information includes their full legal name, date of birth, address, and an identifying number from an acceptable document (such as a U.S. driver’s license, passport, or state-issued ID). Company applicant information includes the individual who directly files the document that creates the entity, and anyone who directs or controls the filing. The specific data elements required are outlined in FinCEN’s guidance on data elements.
for instance, a limited liability company (LLC) owned by two individuals, each with a 50% stake, would need to report the information for both individuals as beneficial owners. The person who filed the articles of institution for the LLC would be reported as the company applicant. FinCEN provides a Frequently Asked Questions section addressing common reporting scenarios.
What are the Penalties for Non-Compliance?
Failure to comply with the CTA can result in both civil and criminal penalties.
Civil penalties can reach up to $10,000 per violation. Criminal penalties can include fines of up to $10,000 and imprisonment for up to two years. Additionally, intentionally providing false information can lead to even more severe penalties. The penalties are detailed in FinCEN’s information on penalties.
On January 18, 2024, the U.S. Department of Justice announced that it would prioritize prosecuting willful violations of the CTA. The Department of Justice’s press release emphasizes the seriousness with which the government views compliance with the CTA.
How to File a Report
Reporting companies must file reports electronically through FinCEN’s Beneficial Ownership Information (BOI) E-Filing System.
The BOI E-Filing System is accessible through fincen’s website.Companies will need to create an account and follow the instructions to submit their reports. FinCEN provides detailed guidance and resources to assist companies with the filing process, including user guides and webinars. The BOI E-Filing System is the official portal for submitting reports.
FinCEN released a BOI E-Filing System User Guide on March 22,2024,to help reporting companies navigate the system and ensure accurate submissions. The guide provides