Introduction
The Corporate Transparency Act (CTA) was enacted in response to increasing worries about the use of anonymous shell companies for illicit activities such as money laundering and terrorism financing. The CTA marks a major shift from the current corporate reporting norms in the United States. Under this law, specific entities are required to disclose their beneficial ownership details to the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Department of the Treasury. The CTA reporting requirements went into effect on January 01, 2024.
Money Laundering & Terrorism Financing
Money laundering is the process by which criminals attempt to disguise the proceeds, sources, or nature of their illicit activities. They do this by processing illegally obtained funds through a series of transactions so that they appear to be derived from legal activities. This typically involves three steps:
- Placement (entering the funds into the financial system)
- Layering (moving funds to obfuscate their origin)
- Integration (using the ‘cleaned money’)
Terrorism financing, on the other hand, employs a blend of legitimate and illicit funding sources to support activities aimed at intimidating or coercing civilian populations, influencing government policies, or disrupting the stability and security of regions.
FinCEN plays an important role in protecting the U.S. financial system from such abuses. FinCEN’s responsibilities include collecting, analyzing, and sharing financial intelligence, and implementing Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) rules and regulations for U.S. financial institutions.
Reporting Requirements
Under the CTA, companies formed or registered in the U.S. must submit a beneficial ownership information (BOI) report to FinCEN unless specifically exempt. The BOI reports provide details on the entity and two distinct groups of individuals: (i) those who exercise significant control over the reporting company, and (ii) those who possess an ownership stake in it. Included in these reports are the full legal names, dates of birth, complete current addresses, and document copies such as passports or driver’s licenses of these individuals. The reports then help FinCEN create a massive database of ownership information to fight illicit activities with the help of law enforcement agencies. This database is not public but accessible to U.S. and certain non-U.S. law enforcement agencies and U.S. financial institutions, based on regulated access rules.
The intentional failure to submit complete or updated BOI to FinCEN, or the deliberate submission or attempt to submit false or fraudulent BOI, can lead to both civil and criminal penalties. Civil penalties can reach up to $500 for each day the violation persists. Criminal penalties may include imprisonment for up to two years and fines up to $10,000. If a company fails to file a required BOI report, its senior officers may be held responsible for this lapse. Furthermore, any individual who willfully causes a company to either not file a required BOI report or to submit inaccurate or incomplete beneficial ownership information to FinCEN could face civil and criminal penalties.
Deadlines
Companies that were created or registered before January 1, 2024, must submit their beneficial BOI report to FinCEN by January 1, 2025. For companies established or registered after January 1, 2024, but before January 1, 2025, the deadline for submitting their BOI report is within 90 days after their creation or registration becomes effective. Companies that are created or registered after January 1, 2025, are required to file their BOI report within 30 days following the effective date of their creation or registration. Additionally, any updates or corrections to the BOI must be reported to FinCEN within 30 days of the change.
For a comprehensive understanding of the CTA’s reporting requirements, we encourage you to download our firm’s detailed white paper. This document offers thorough guidance on the CTA, helping your business understand and comply with its provisions. Our white paper covers critical aspects such as compliance deadlines, covered entities, beneficial owners, company applicants, and practical steps for adherence.
To access this informative resource, please click the following link:
Download the Corporate Transparency Act Reporting Requirements White Paper.