On behalf of Sayer Regan & Thayer of Sayer Regan & Thayer, LLP posted on Thursday, February 2 , 2022.
On January 1, 2021, Congress passed the National Defense Authorization Act for Fiscal Year 2021, of which the Corporate Transparency Act (CTA) was included. Under the CTA, all U.S. businesses must file information regarding “beneficial ownership” with the Financial Crimes Enforcement Network (FinCEN). The purpose of the CTA is to ban anonymous shell companies that criminals and some foreign officials utilize to launder illicit funds and finance their criminal operations.
The report that companies file must include the name, date of birth, address, and unique identification number of the company’s “beneficial owner” to FinCEN, a U.S. Treasury Department bureau. On top of that, the company must update this information annually to verify information or to make changes. The new rule is significant because many of these business entities have not previously been subject to beneficial ownership reporting requirements, which in the past paved the way for criminal enterprises to flourish.
Who Must Report?
The CTA requires reporting by corporations, limited liability companies (LLCs), and similar entities that have been formed under state law or that have been registered to do business in this country.
Who is Exempt?
There are some companies that are exempt from reporting requirements, including some large employers, tax-exempt entities, non-profit organizations, and companies that are already regulated (banks, securities issuers, insurance companies, etc.). Other exemptions include investment companies, public utility companies, accounting firms, pooled investment vehicles, political organizations, and companies employing more than 20 people.
What are the Penalties?
Any company that provides false or fraudulent information, or that fails to report or complete beneficial ownership information can violate the terms of the CTA. Civil penalties may result of up to $500 for each day the violation is allowed to continue. There may also be criminal fines imposed up to $10,000 and/or jail time for up to two years.
How Long is the Beneficial Ownership Information Kept?
Beneficial ownership information that has been given to FinCEN is kept in a secure and confidential national registry. That information will be maintained for at least five years after a reporting company has been terminated. The Treasury department must ensure information security protections, encryption included, for any and all beneficial ownership information that is reported.
Key Takeaways
• The CTA mostly applies to foreign-owned shell companies, but all businesses should review the definition of what a “reporting company” is and what the exceptions are.
• The beneficial ownership information that is gleaned will allow state and local law enforcement agencies to share that information with international agencies to better combat money laundering and other criminal activities.
Contact Sayer, Regan & Thayer LLP for CTA Filing Assistance
If you are a U.S.-based business and want to know more about the Corporate Transparency Act, its exemptions or how it applies to you, contact us toll free at 866-378-5836 for your free, no-obligation consultation.
These materials have been prepared by SRT for informational purposes only and are not intended and should not be construed as legal advice.