Decoding the Corporate Transparency Act: A Closer Look at its Purpose and Requirements

Introduction

A key piece of legislation intended to strengthen American defences against money laundering and other illicit financial operations is the Corporate Transparency Act (CTA), which went into effect on January 1, 2021, and was included in the 2021 National Defense Authorization Act (NDAA) under the Anti-Money Laundering Act (AMLA) of 2020. We hope to shed light on the intricacies of the Corporate Transparency Act purpose, beginning with an outline of its objectives, prerequisites, and affected companies.

Purpose of the Corporate Transparency Act

The CTA was created with the intention of discouraging criminals from trying to smuggle money into the American banking system. Legitimate companies are important to the economy, yet they can be used to launder money through the selling of weapons, drugs, and other illicit goods, as well as the funding of terrorism. To combat this issue, the CTA requires increased openness, which makes it more difficult for criminals to hide their actions behind corporate companies.

Requirements Imposed by the Corporate Transparency Act

Certain businesses are now required by the CTA to submit a report to the Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury. This report needs to provide thorough information, like:

1. Company Details:

              a. Full Name

              b. Trade Name or Doing Business as (DBAs)

              c. Business Street Address

              d. Jurisdiction of Formation

              e. IRS Taxpayer ID

2. Beneficial Owner and Company Applicant Information:

              a. Name

              b. Birth Date

              c. Address

              d. Unique identifying number from an official document (passport or state-issued driver’s license)

A person who either owns or controls at least 25% of the ownership interests in the reporting company or who has significant control over it is referred to as a “beneficial owner.” A “company applicant” is the person who registered the company to do business in the United States or the person who filed the application to incorporate the corporation.

Which companies are required to file?

The CTA applies to U.S. corporations created by or foreign corporations registered in the U.S. by filing documents with the secretary of state or a similar office under the law of a state or Indian Tribe. Notably, there are exceptions for entities already subject to federal and/or state regulation, including but not limited to:

• Large operating companies (> 20 full-time US employees; > gross sales of $5Mn; having a physical office in US)
• Securities issuers
• Banks
• Insurance companies and producers
• Brokers or dealers in securities
• Registered investment companies and advisers
• Venture capital fund advisers
• Accounting firms
• Organizations exempt from taxes or those that support them
• Special pooled investment funds

What are the penalties for non-compliance?

There are severe penalties for willful non-compliance with CTA reporting obligations. If found guilty, parties might be fined up to $500 for each day they willfully failed to disclose, with a $10,000 maximum sentence overall. In addition, sentences to a maximum of two years in prison are possible for individuals.

We will discuss the specifics of what needs to be included in a beneficial ownership report in future articles, giving readers a deeper knowledge of this important facet of CTA compliance. Keep checking back for additional details about the Corporate Transparency Act and how it affects American companies.

Please refer to our comprehensive guide on navigating the Corporate Transparency Act.