On January 1, 2021, Congress enacted the Federal Corporate Transparency Act (the “CTA”), pursuant to which a secure database will be established to assist law enforcement agencies in combatting money laundering, financing of terrorism, and other illegal activities. The objective of the CTA is to prevent bad actors from using shell companies to obscure the provenance of their ill-gotten gains.
The database will be administered by the Financial Crimes Enforcement Network (“FinCEN”), an agency of the U.S. Department of Treasury. Companies will be required to provide information relating to their beneficial owners (generally, individuals owning 25% or more) and persons who are in control (generally, individuals holding significant decision-making authority). There are exceptions, such as publicly traded companies, companies with annual gross receipts exceeding $5 million that have more than 20 full-time U.S. employees and a physical office in the United States, and companies already subject to Federal government oversight (e.g., banks).
Companies will have to supply information such as social security number, passport number, and other personally identifiable information for each beneficial owner. FinCEN will be responsible for securing this information, and access to this database will be limited to law enforcement agencies and, with the company’s consent, banks and other institutional lenders.
The CTA will become effective when FinCEN publishes final regulations governing how the statute will be administered and enforced. All entities formed after that date must comply when they are formed (the proposed regulations would require compliance within 14 days after formation), and existing entities will have up to two years from the effective date to comply (although proposed regulations change this to one year). Information erroneously submitted must be promptly corrected, and changes to beneficial owner/control person information must be reported within one year of such change (the proposed regulations change this to 30 days).
As noted above, we are awaiting final regulations that will provide further information on how CTA will affect companies and how the new requirements will be administered. We continue to monitor the CTA and the regulatory activity in this area and will publish further posts with any new developments.
For more information on the CTA, or other legal issues, contact Joanne Murray. To learn more about Antheil Maslow & MacMinn’s Business Law Services, visit our Business & Finance pages at ammlaw.com.