The Corporate Transparency Act is a landmark piece of legislation that has been enacted in the United States to promote transparency in corporate ownership. The Act requires corporations to disclose their true beneficial owners to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury. This article explores the reasons why this legislation has been enacted, why we need to comply with it, as well as some insight as to what else we should be prepared for going into 2024.
Background Info – CTA Act
The Corporate Transparency Act was signed into law on January 1, 2021, as part of the National Defense Authorization Act for Fiscal Year 2021. The Act is intended to combat money laundering, terrorism financing, and other illicit activities by making it more difficult for criminals to use anonymous shell companies to hide their identities and launder money.
The Act requires all corporations, limited liability companies, and other similar entities to disclose their true beneficial owners to FinCEN. A beneficial owner is defined as any individual who directly or indirectly owns 25% or more of a corporation or has substantial control over the entity.
Reasons for the Corporate Transparency Act
The Corporate Transparency Act was enacted to address a significant loophole in the U.S. anti-money laundering regime. Prior to the Act’s enactment, it was relatively easy for individuals to create anonymous shell companies in the U.S. that could be used for illegal purposes, such as money laundering, tax evasion, and terrorism financing. These shell companies could be used to hide the true ownership of assets, making it difficult for law enforcement to track down illicit funds.
The lack of transparency in corporate ownership has been a long-standing concern for law enforcement agencies and policymakers. According to a report by the Financial Action Task Force (FATF), an intergovernmental organization that sets international standards for anti-money laundering and counter-terrorism financing, anonymous shell companies are a significant risk to the global financial system. The report notes that criminals often use these entities to move illicit funds across borders and conceal their activities from law enforcement.
Compliance with the Corporate Transparency Act
To comply with the Corporate Transparency Act, corporations must provide FinCEN with the name, date of birth, address, and identification number (such as a passport or driver’s license) of each beneficial owner. If a corporation has more than one beneficial owner, it must also provide the name and contact information of a “person who has substantial control” over the entity.
The Act imposes significant penalties for non-compliance. Failure to comply with the Act’s reporting requirements can result in fines of up to $10,000 and imprisonment for up to two years. In addition, corporations that knowingly submit false or misleading information to FinCEN can be fined up to $500,000.
Why The Corporate Transparency Act Matters
The Corporate Transparency Act is a significant step forward in the fight against money laundering and terrorism financing. By requiring corporations to disclose their true beneficial owners, the Act makes it more difficult for criminals to use anonymous shell companies to hide their identities and launder money. Although compliance with the Act can be challenging, it is essential to promote transparency in corporate ownership and protect the global financial system from illicit activities.
Conclusion – How to Prepare for The Corporate Transparency Act
Those looking to get started with the prep work should research the requirements based on their business structure and size. In many cases with businesses of at least several employees in size, you would want to protect yourself as an owner from any possible incorrect information that any other beneficial owner could potentially submit to you for filing. To ensure that you do not get any of the hefty potential fines, CTA affidavits can be used even now before the official filing date arrives. If you are ready to prepare for the CTA you can use services such as CTA Filer to order and store legal documents as well as receive support for any questions you may have.