Effective on January 1, 2024 (the “CTA Effective Date”), the Corporate Transparency Act (“CTA” or the “Act”) requires certain registered business entities (“Reporting Companies”) that conduct business in the United States to disclose information about individuals who own 25% or more of the Reporting Company’s equity and individuals who control certain important functions of such entities, among other requirements. Under the CTA, certain identifying information of beneficial owners – the person’s name, date of birth, address and driver’s license or passport number (“BOI”) – must be provided to the Financial Crimes Enforcement Network (“FinCEN”) of the United States Treasury Department by deadlines established in the Act based on the date that the Reporting Company is formed. For Reporting Companies formed prior to January 1, 2024, initial reports must be filed by January 1, 2025.
The CTA is intended to support anti-money laundering laws by authorizing FinCEN to maintain a centralized, nonpublic database of BOI for Reporting Companies that is accessible to law enforcement agencies, national security agencies, and financial institutions. The CTA generally applies to business entities that are often obscured from the view of financial fraud authorities because they are small companies with opaque operations and ownership structures. These entities are easily weaponized through corporate law and privacy customs to perpetrate financial fraud. The CTA attempts to stop that by collecting information of key persons involved in forming and operating these businesses to give authorities more tools to identify and prosecute financial fraudsters.
What Companies Should Do
All companies with operations in the United States, whether domestic or foreign companies, should determine whether the CTA applies to them. Management of Reporting Companies under the CTA must determine which of its owners and managers are mandated as “Beneficial Owners” to provide BOI. BOI of such persons should be gathered and filed with FinCEN through an Initial Report by the dates prescribed in the Act and with updates through Correction Reports, New Information Reports and Newly Exempt Entity Reports.
The CTA rules have some complexity when viewed in light of intricate organizational webs, complex ownership structures and layered management rights related to many “corporate families”. For practical reasons, including privacy, risk management and tax efficiency, some multi-entity organizations have been designed in byzantine structures to achieve legitimate goals. Given the potential penalties involved with violations of the CTA, a wrong conclusion about whether the rules apply to a company or an intentional violation of the Act could be costly. For Reporting Companies that are part of complex frameworks, compliance with the CTA may be best achieved with careful legal analysis and guidance.
If you have any questions about the CTA, its reporting obligations and how they affect your business, we would be happy to discuss them with you. Please reach us by email at CTACompliance@bryantrabbino.com or get in touch with your contact at the Firm.