In an effort to combat “money laundering,” Congress passed the Corporate Transparency Act (“CTA”) on January 1, 2021. The CTA is not technically in effect yet; however, we anticipate that it will be the law by January 1, 2022, unless Congress enacts the regulations sooner. As such, “owners” of business entities need to be aware that this is likely to become law relatively quickly. The CTA mandates new reporting requirements for businesses through a newly created non-public registry that is designed to track the beneficial, i.e., the “real” owners of the business entity.
Unless one of the limited exceptions applies, all entities (corporations, limited liability companies, or similar entities) will be obligated to submit a report to the U.S. Department of Treasurer’s Financial Crimes Enforcement Network (“FinCEN”) identifying each beneficial owner’s full legal name, date of birth, address, and a unique identifying number or FinCEN identifier number. A “beneficial owner” is anyone who exercises substantial control over the entity or who owns or controls no less than 25% of the ownership interest of the entity. The CTA, however, does not define “substantial control.” So, this is an area where potential risk lies.
Entities that existed prior to the enactment of the CTA will be required to submit their report within two years after its effective date. Any new entities formed after the CTA becomes effective must file their report at the time of formation. Any changes in the beneficial ownership must be reported within a year of the change.
The information collected is supposed to remain confidential unless requested by law enforcement agencies.
While the exact manner of filing the report is unclear, it appears that this will impact several small business owners. In addition, the failure to report can lead to civil and criminal penalties, so this is a key reporting requirement to keep in mind. We will be following the CTA and the new guidelines as they are mandated.