A new federal law will require business entities to report their ownership information to the Financial Crimes Enforcement Network (FinCEN). On January 1, 2021, Congress enacted the Corporate Transparency Act (CTA) as part of the National Defense Authorization Act for 2021. The U.S. Department of the Treasury and FinCEN adopted Regulations implementing the CTA on September 30, 2023.
Under the CTA, certain “reporting companies” will be required to disclose personal information regarding their beneficial owners to FinCEN. The stated purpose of the filing requirement is to counter money laundering and the financing of terrorism, by hindering criminals from utilizing shell companies to launder money or evade taxes. While the CTA appears to target shell companies, its language is broad enough to ensnare most small businesses and real estate LLCs.
When Will Reporting Begin?
1. Any domestic reporting company created on or after January 1, 2024 must file a report within 30 calendar days of its formation.
However, FinCEN has proposed to amend the filing deadline from 30 calendar days to 90 calendar days for entities formed between January 1, 2024 and December 31, 2024. Reporting companies formed on or after January 1, 2025 or thereafter would be required to report within 30 calendar days.
2. Any domestic reporting company created before January 1, 2024 must file a report not later than January 1, 2025.
Who must report: “Reporting companies” defined as any corporation, limited liability company or “similar entity” that was created by filing a document with a Secretary of State, or was formed under the law of a foreign country and registered to do business in the U.S. by filing a document with a Secretary of State.
“Large operating companies” employing more than 20 full time employees in the U.S. that have (a) previously filed federal tax returns; (b) more than $5 million in gross receipts or sales; and (c) an operating presence at a physical office in the U.S.
Certain inactive companies
Companies subject to existing regulatory reporting requirements, i.e., banks, investment companies, brokers or dealers in securities, certain tax-exempt entities
Information to be Reported
The identity of the Company’s “beneficial owners” — defined as an individual who, directly or indirectly, either “exercises substantial control over such reporting company ” or “owns or controls at least 25% of the ownership interests of such reporting company”:.
- Full legal name of each beneficial owner
- Date of birth
- Residential street address
- Identification number – driver’s license or passport number
- An image of the document from which the identification number was obtained.
A corporation or an LLC with a multi-layered ownership structure must drill down to the individuals who ultimately exercise substantial control over or own or control at least 25% or more of the ownership interests for reporting purposes.
Certain identifying information must also be reported about the person who filed the document that created the reporting company.
If there is any change with respect to required information previously submitted to FinCEN concerning a reporting company or its beneficial owners, including any change with respect to who is a beneficial owner or information reported for any particular beneficial owner, the reporting company must file an updated report within 30 calendar days after the date on which such change occurs.
Penalties for Non-Compliance
Violations of the CTA carry civil penalties of up to $500 for every day the violation continues and criminal fines up to $10,000 and/or imprisonment for up to two years. The unauthorized disclosure of information by a government employee or a third-party recipient also includes civil and criminal penalties. Use of the information: The reported information will not be available publicly. The CTA requires FinCEN to maintain beneficial ownership information in a secure, non-public database that is highly useful to national security, intelligence, and law enforcement agencies, as well as federal functional regulators. It will be accessible to federal agencies engaged in national security, intelligence or other law enforcement activity, and state, local or tribal law enforcement agencies, if a court authorizes the law enforcement agency to seek the information for criminal or civil investigation. With the consent of the reporting company, a financial institution subject to customer due diligence requirements may request the information to facilitate the compliance of the financial institution with customer due diligence requirements under applicable law.