Partner, Benjamin Trujillo J.D., LL.M. –
In January 2021, a significant milestone was reached by including the Corporate Transparency Act (CTA) in the Anti-Money Laundering Act of 2020, embedded within the National Defense Authorization Act for Fiscal Year 2021. This pivotal legislation mandates certain companies to disclose their beneficial ownership information (BOI) to a non-public government database maintained by the Financial Crimes Enforcement Network (FinCEN). The CTA aims to combat money laundering, tax fraud, and other illicit activities by enhancing ownership transparency within entities operating in or accessing the United States market.
Key Provisions of the Corporate Transparency Act:
Beneficial Ownership Reporting:
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- Starting January 1, 2024, specific entities are required to report detailed beneficial ownership information to FinCEN.
- Beneficial ownership information includes details about individuals owning or controlling 25% or more of the ownership interests and those responsible for managing the entity.
Ongoing Reporting Requirements:
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- Covered entities must submit reports to FinCEN containing their beneficial owners’ names, dates of birth, addresses, and unique identification numbers.
- Updates to this information must be reported to FinCEN within 30 days of any changes.
Exemptions:
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- Some entities, including publicly traded companies, specific financial institutions, and those subject to substantial regulatory reporting, are exempt from the reporting requirements. Please visit https://www.fincen.gov/ to determine whether an exemption applies.
Access to Information:
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- FinCEN will maintain a non-public database of reported beneficial ownership information.
- Law enforcement agencies and authorized government entities will have access to this information for investigative and national security purposes.
Penalties for Non-Compliance:
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- Failure to register or report beneficial ownership information may result in significant civil penalties, reaching up to $500 per day, with potential criminal penalties for willful non-compliance.
When the Corporate Transparency Act Applies:
Covered Entities:
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- The CTA primarily applies to “reporting companies,” including corporations, limited liability companies (LLCs), and similar entities formed by filing documents with state authorities.
- Entities formed in foreign jurisdictions but registered to do business in the United States are also covered.
Exclusions:
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- Publicly traded companies, specific financial institutions, and entities with minimal individual ownership are generally exempt from reporting requirements.
- Specific financial institutions, such as banks and credit unions, are also excluded, as they fall under separate regulatory frameworks.
Nonprofit Organizations:
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- Nonprofit organizations, trusts, and entities with insignificant individual ownership are generally not covered.
Additional Information:
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- The Corporate Transparency Act generally applies to companies employing fewer than 20 people, reporting revenues under $5 million to the IRS, and having a physical presence in the United States. Existing entities must submit a beneficial ownership interest report to FinCEN by the end of 2024, while those formed between January 1, 2024, and December 31, 2024, must file within 90 days of formation, and those formed on or after January 1, 2025, will have 30 days to file. Any reported beneficial ownership information changes require an updated report within 30 days.
The Corporate Transparency Act introduces a new era of corporate ownership reporting requirements in the United States. Small business owners and affected entities should familiarize themselves with these rules, which will be effective in just a few weeks. For any questions or concerns about this reporting requirement, contact your CWJ advisor. We will continue to monitor and provide updates on these new reporting requirements.
If you have any questions, please reach out to a member of Compardo, Wienstroer & Janes or email our team at: thecompardoteam@monetagroup.com.
Please click here for our Compliance Team’s resource PDF about CTA that has additional information.
Moneta does not provide legal advice. Please refer to the stated regulations here: https://www.fincen.gov/
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