Dakar Rally: R. Baciuska Leads, V. Zala Loses Ground
- 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.
- For example, on December 1, 2023, FinCEN finalized the rule detailing the requirements for reporting, including the types of information to be collected and the procedures for filing...
“`html
What is the Corporate Transparency 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.
For example, on December 1, 2023, FinCEN finalized the rule detailing the requirements for reporting, including the types of information to be collected and the procedures for filing reports. This rule became effective January 1, 2024.
Who Must comply with the CTA?
Most U.S. entities created or registered to do business in the United States must comply with the CTA, with some exceptions.
The CTA applies to 23 types of entities, including corporations, limited liability companies (LLCs), and other similar structures.though, there are 23 exemptions listed in FinCEN’s guidance on exemptions. These exemptions include entities that are already subject to notable regulatory oversight, such as banks, credit unions, insurance companies, and certain SEC-reporting companies. Entities with $5 million or more in gross receipts in the previous year are also exempt, as are entities with more than 20 full-time employees.
As of January 1, 2024, companies formed *before* January 1, 2024, have until January 1, 2025, to file their initial reports. Companies formed in 2024 must file within 30 days of formation, and companies formed in 2025 and beyond must file within 90 days of formation, according to FinCEN’s filing deadlines.
What information needs to Be reported?
Reporting companies must disclose information about their beneficial owners and company applicants to fincen.
Beneficial owners are individuals who directly or indirectly own or control at least 25% of the reporting company. This includes individuals who exercise substantial control over the company, even if they don’t own a significant percentage of the equity. Company applicants are the individuals who directly file the document that creates the entity with the relevant state authority. The required information includes full legal name, date of birth, address, and an identifying number from an acceptable document (such as a U.S. driver’s license or passport). FinCEN provides a detailed list of required information and acceptable documents.
As a notable example, a limited liability company (LLC) owned by two individuals, each with a 50% ownership stake, would need to report the information for both individuals as beneficial owners. If a trust owns 30% of the LLC, the trust beneficiaries (or controlling persons) who meet the 25% threshold would also need to be reported, as stated in FinCEN’s guidance on trusts.
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. Furthermore, knowingly providing false information can result in even more severe penalties, including fines of up to $250,000 and imprisonment for up to five years, as outlined in a Department of Justice press release regarding the first CTA-related enforcement action.
On March 1, 2024, the Department of Justice announced the first enforcement action under the CTA, charging a man with willfully failing to report beneficial ownership information. This case underscores the seriousness with which the government is taking compliance with the CTA.
What Resources are Available for Compliance?
FinCEN and other organizations offer resources to help companies comply with the CTA.
FinCEN provides a comprehensive set of resources on its website, including FAQs, guidance documents, and a dedicated help desk.small business development centers (SBDCs) and legal professionals specializing in compliance can also provide assistance. The American Bankers Association has also published resources for its members to help them understand and implement the CTA requirements.
FinCEN’s BOI