BY CONNOR STEENS
The Corporate Transparency Act (CTA) was enacted on January 1 2021 and will require many companies to provide information pertaining to the beneficial owners and key individuals that formed the company to the Department of Financial Crimes Enforcement Network (FinCEN). Such information will be held by FinCEN in a database that is accessible only to specific law enforcement agencies or financial institutions (with the company’s consent)
The CTA looks to significantly affect the formation of new business entities as well as the owners, managers, lawyers and other service providers involved in their formation or record maintenance. The CTA finds its purpose as an assistance to law enforcement in the prevention of money laundering and other illicit activities through the use of shell companies, bringing the USA into alignment with international AML/CFT standards.
On December 7 2021, FinCEN issued its first ret of proposed regulations under the CTA with further proposals being issued later this year. Reporting obligations will not take effect until all rules have been finalized and protocols, forms and reporting mechanisms are established. While there are exemptions (as mentioned below) the CTA will apply broadly to domestic corporations, LLC’s and other entities that are formed by filing a document with a secretary of state or similar office. Foreign entities that are registered and do business in a state jurisdiction will also be required to meet the proposed obligations.
Exemptions exist for entities that are already subject to significant regulatory oversight such as banks, public companies, registered investment advisors, insurance companies and non-profit organizations. Businesses with more than 20 employees that have revenues over $5,000,000 and have an operational presence at a physical United States office will also be exempt.
FinCEN’s proposed rule states that domestic companies formed, or foreign entities that first register in the US on or after the effective date will be required to file an initial report within 14 days of the company’s date of formation or registration. Reporting companies that were formed or registered in the US prior to the effective date will be required to file an initial report within one year of the effective date. Thereafter companies will be required to report any changes within 30 days and amend inaccurate filings within 14 days of discovering the inaccuracy.
The information required includes identification information of beneficial owners and applicants. The CTA is a noteworthy step in the prevention of money laundering and financing of terrorism and towards ensuring that authorities have access to the required information to do so.