Congress recently passed the Corporate Transparency Act in an effort to continue mitigating money laundering through shell companies. This law requires corporations and limited-liability companies to disclose “beneficial ownership” information to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). The CTA is a part of the National Defense Authorization Act.
Here’s what you need to know:
- Who is defined as a “beneficial owner”? The CTA requires private companies, specifically corporations and LLCs, to report all those individuals who, whether directly or indirectly, possess at least 25% of ownership interest in the company, and those who exercise substantial control over it.
- What owner information must be reported? Required information includes the owner’s name, birthdate, address, and either driver’s license or passport number.
- What businesses does the CTA apply to? While the statute explicitly applies to corporations and LLCs, Treasury regulations may extend the CTA’s reach to partnerships and trusts. The statute does not apply to publicly traded companies, heavily regulated companies (e.g., banks and credit unions), and companies with at least 20 full-time employees that reported more than $5 million in gross receipts on prior tax returns. The CTA also authorizes Treasury to create additional exemptions.
- When will this statute take affect? Treasury has until January 1, 2022, to adopt regulations concerning this bill. Private companies formed on or after this date will have to provide this information at the time of formation. Companies formed before this date will have a longer period after adoption to file their reports.
- Are there penalties if you fail to comply? Yes, there are penalties for noncompliance. These include civil penalties up to $500 per day, and criminal penalties of up to $10,000 and up to two years in prison.
If you think the Corporate Transparency Act may apply to you, be sure to talk to an attorney to clarify. And if it does apply to your business, be sure that you review and enhance your compliance processes so that you report all required information to FinCEN.
We will keep you updated as Treasury releases more information and clarifies regulations. Please don’t hesitate to contact the attorneys at Jones Obenchain with any questions.