The Corporate Transparency Act (CTA), included as an amendment to the Anti-Money Laundering Act of 2020, was passed by Congress this year as an effort to make it more difficult to commit “shell company” money laundering, tax fraud, and other financial crimes. The CTA requires the annual disclosure of information regarding beneficial owners of U.S. companies to the Financial Crimes Enforcement Network (FinCEN).
The CTA defines a beneficial owner as an individual who exercises substantial control over the entity either directly or indirectly (through any contract, arrangement, understanding, relationship, or otherwise), or an individual who owns or controls not less than twenty-five percent of the ownership interests of the entity. The information to be reported will include the individual’s full legal name, date of birth, current residential or business street address, and a unique identifying number from an acceptable identification document or the individual’s FinCEN identifier.
With certain exemptions, the CTA applies to all corporations, limited liability companies, or other entities that are formed or registered to do business in the United States. Unless an entity is exempted under the CTA, failure to report to FinCEN can result in daily civil penalties and potential criminal exposure. Entities exempted by the CTA include:
- Publicly traded companies, nonprofit organizations, or heavily regulated companies
- Most financial service, investment, accounting, and banking institutions already reporting to agencies like the SEC and FDIC
- Companies that have a physical presence in the United States, and have either more than 20 full-time employees or report revenues of more than 5 million dollars annually
FinCEN is required to establish reporting requirements and regulations by January 1, 2022. Compliance deadlines for companies will be based on the established effective date.
- New entities subject to the CTA will be required to report to FinCEN during the formation process
- Existing entities subject to the CTA will have two years from the effective date to comply with the reporting requirements
The information will not be publicly available, but FinCEN is authorized to disclose the information to the following:
- U.S. federal law enforcement agencies
- Certain other enforcement agencies, with court approval
- Non-U.S. law enforcement agencies, prosecutors or judges based upon a request of a U.S. federal law enforcement agency
- Financial institutions and their regulators, with the consent of the reporting company