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The Corporate Transparency Act is a critical, complex compliance ruling. Are you prepared?
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Introduction
In an era of increasing scrutiny of complex and anonymous ownership structures and an increasing focus on financial transparency, the Corporate Transparency Act (CTA) stands out as a crucial piece of legislation in the United States. So, what is the Corporate Transparency Act?
Most significantly, the CTA created new Beneficial Ownership Information Reporting (BOIR) which requires most legal entities to report information about formation, beneficial ownership, and control persons, with such reporting to begin January 1, 2024.
What is the Corporate Transparency Act?
Signed into law on January 1, 2021, the Corporate Transparency Act as a part of the National Defense Authorization Act represents a vital step in the fight against financial crime, money laundering, and illicit financial activities. The primary goal of the CTA is to enhance corporate transparency by requiring certain entities to disclose information about their beneficial owners to the federal government, specifically to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. FinCEN will utilize this data to establish and uphold a national registry, granting authorized users, including law enforcement agencies and certain financial institutions, access to the identities of individuals who possess direct or indirect ownership or control over a company.
Corporate Transparency Act: Key Provisions
Beneficial Ownership Disclosure
The Corporate Transparency Act mandates that corporations, limited liability companies (LLCs), and certain other types of legal entities (domestic and foreign) report detailed information about their beneficial owners, defined as individuals who directly or indirectly control 25% or more of the entity’s ownership interests or have substantial ability to control business decisions.
Company Applicant Disclosure
Each company that is required to file a Beneficial Ownership Information Report (BOIR) and was established in 2024 or later will need to report the individuals who i) directly submitted the document responsible for establishing or initially registering the reporting company and/or (ii) were chiefly accountable for guiding or managing the submission of the legal document. No more than two company applicants are to be reported.
Update Requirements
Entities covered by the Corporate Transparency Act must provide information such as the names, addresses, birthdates, unique identification numbers (e.g., driver’s license or passport numbers), and images of identification documents of their beneficial owners and control persons. Whenever any of this information changes, the entity has 30 days to submit the new information to FinCEN.
Enhanced Enforcement
The CTA imposes substantial penalties for non-compliance and willful provision of false information. Entities that fail to report accurate beneficial ownership information may face significant criminal and civil penalties.
Regulatory Guidance
Subsequent to enactment of the Corporate Transparency Act, FinCEN has issued a series of interpretive regulations to establish the specifics of how the beneficial ownership reporting regime will be administered, and how key provisions will be interpreted. Such regulatory interpretation has included interpretation and guidance on what entities are subject to reporting, what beneficial owners and control persons must be reported, and what data fields and documentation will be required.
Non-Compliance
Failing to comply with the requirements can be very severe. It can be up to $10,000 in fines or up to 2 years of imprisonment.
Are You Prepared to File?
The Corporate Transparency Act represents a significant milestone in the effort to enhance corporate transparency and combat financial crime in the United States. Understanding this new Act and its components is essential for all businesses and their advisors, so as to maintain compliance with this important legislation. Get educated about this topic, and make sure you have a game plan for your reporting requirements in 2024!
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