Breaking Down the Corporate Transparency Act

Related Practices and Jurisdictions

Wednesday December 1, 2021

The Corporate Transparency Act (CTA), included as a supplement to the Anti-Money Laundering Act of 2020, was passed by Congress this year to make it more difficult to commit money laundering by mailbox companies, tax fraud and other financial crimes. The CTA requires the annual disclosure of information about beneficial owners of US companies to the Financial Crimes Enforcement Network (FinCEN).

The CTA defines a beneficial owner as an individual who, either directly or indirectly (through a contract, agreement, arrangement, relationship, or otherwise) exercises material control over the company, or an individual who has at least twenty-five percent of the shares owns or controls the ownership of the company. The information to be reported includes the person’s full legal name, date of birth, current residential or business address and a unique identification number from an acceptable identification document or the person’s FinCEN identifier.

With certain exceptions, the CTA applies to any corporation, limited liability company, or other corporation incorporated or registered in the United States to do business there. Unless a company is exempted from the CTA, failure to report to FinCEN can lead to daily civil law sanctions and potential criminal detection. Companies exempt from the CTA are:

• Listed companies, nonprofits, or highly regulated companies

• Most financial services, investment, accounting, and banking institutions already report to agencies like the SEC and the FDIC

• Companies that have a physical presence in the United States and either have more than 20 full-time employees or have annual sales of more than $ 5 million

FinCEN is obliged to set reporting obligations and regulations by January 1, 2022. The deadlines for corporate compliance are based on the specified effective date.

• New companies that are subject to the CTA must report to FinCEN during the formation process

• Existing companies subject to the CTA have two years from the effective date to comply with the reporting requirements

The information will not be publicly available, but FinCEN is entitled to pass the information on to the following persons:

• US Federal Police

• Certain other law enforcement agencies with judicial approval

• Non-US law enforcement agencies, prosecutors, or judges at the request of a US law enforcement agency

• Financial institutions and their regulators with the consent of the reporting company

© Steptoe & Johnson PLLC. All rights reserved.National Law Review, Volume XI, Number 335

https://www.natlawreview.com/article/corporate-transparency-act