SECURE 2.0 Act – How It Affects You and Your Retirement Account Beneficiaries
October 27, 2023
How to Protect Your Business from Lawsuits
April 17, 2024
The Corporate Transparency Act (CTA,1) enacted as part of the Anti-Money Laundering Act of 2020 (AMLA), places new
reporting requirements on many business entities in an effort to expose illegal activities,
including the use of shell companies to launder money or conceal illicit funds. Around 30
million small businesses will be impacted by the law, which will establish a federal database of
information, furnished by “reporting companies,” that will be accessible to certain authorities
and organizations.
Why was the CTA passed?
The CTA was passed as part of the National Defense Authorization Act for Fiscal Year 2021. It
directs the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN)
to gather information from private companies about their owners and controlling persons.
Acting Director Himamauli Das said, “FinCEN is taking aggressive aim at those who would
exploit anonymous shell corporations, front companies, and other loopholes to launder the
proceeds of crimes, such as corruption, drug and arms trafficking, or terrorist financing.” 2
To counter the risks allegedly posed by anonymous shell companies, the CTA mandates the
creation of a national registry that contains certain information about business entities that are
formed by filing a document with a state’s secretary of state or similar office.
What does the CTA require?
Effective January 1, 2024, the CTA requires that certain businesses disclose to FinCEN
information about the company, its beneficial owners, and in some cases, the company
applicant.
Reporting companies—defined as any company with twenty or fewer employees that is formed
by filing paperwork with the Secretary of State or equivalent official—that are created or
registered prior to January 1, 2024, have until January 1, 2025, to file an initial report; reporting
companies created or registered after January 1, 2024 and before January 1, 2025, will have
ninety days after creation or registration to file a report. Entities created on or after January 1,
2025 will have 30 days to submit the reports to FinCEN.
Does the CTA require my business to report?
The CTA applies to companies that are created by filing a document with a state authority.
Typically, this includes corporations and limited liability companies. Depending on the state, it
could also include limited partnerships, professional associations, cooperatives, real estate
investment trusts, and trusts. In addition, the CTA applies to non-US companies that are
registered to operate in the United States.
The CTA exempts around two dozen categories of companies, including companies that
● are publicly-traded;
● have more than twenty full-time US employees;
● filed a previous year’s tax return showing more than $5 million in gross receipts or sales;
● have an operating presence at a physical US office location;
● operate in a regulated industry, such as banking, utilities, or insurance, that already
imposes similar reporting requirements; or
● are subsidiaries of exempt organizations.
The exemptions, which generally include larger companies that are already subject to
regulation, underline the primary purpose of the CTA: to combat money laundering and other
illicit activities conducted via small, private, and anonymous shell companies.
What information must be provided in the reports?
The CTA requires three categories of information to be reported: company, owners, and
applicant.
● Domestic reporting companies created before January 1, 2024 must provide information
about the company and its beneficial owners.
o Beneficial owner is defined in the CTA as an individual who exercises “substantial
control” over the reporting company or has an ownership interest of at least 25
percent, this includes spouse in community property states like Texas. Company
senior officers, directors, and others who make significant decisions on behalf of
the company may meet this statutory definition of “substantial control,” although
the broad definition may cause confusion in some instances.
● Domestic reporting companies created on or after January 1, 2024, must provide
information about the company, its beneficial owners, and its company applicants.
o A company applicant generally is the individual who files the formation document
with state authorities for the reporting company.
Technically, the information to be filed with FinCEN is called a Beneficial Ownership
Information (BOI) Report. The following is what is required in the report for a company, an
owner, and an applicant:
● The reporting company must provide its name and any alternative (DBA) names, the
address of its principal place of business, the state of formation, and its taxpayer
identification number or FinCEN identifier.
● Each beneficial owner of a reporting company must furnish their full legal name, date of
birth, residential address, and an identification number from a driver’s license, passport,
or other state-issued identification (ID), along with a copy of the ID document.
●A company applicant is required to submit the same information as a beneficial.
Who has access to FinCEN BOI reports?
The CTA authorizes FinCEN to disclose BOI information to five categories of recipients: 3
● US federal, state, local, and tribal government agencies
● Foreign law enforcement agencies, judges, prosecutors, and other authorities
● Financial institutions
● Federal regulators
● US Department of the Treasury
FinCEN may only disclose BOI information “under specific circumstances”: there are more
stringent requirements for agencies other than those engaged in national security, intelligence,
and law enforcement activities. There are also restrictions on how the information may be used
and how it must be secured.
Are there penalties for non-compliance with the CTA?
Penalties for non-compliance may be steep. Willingly providing false information (including
false identifying documents) to FinCEN, or failing to report complete BOI information, can
result in:
● Fines of $500 per day, up to $10,000
● Imprisonment for up to two years
Civil and criminal liability may be avoided if an individual who submitted an original
erroneous report did not knowingly submit inaccurate information and submits an updated
report correcting the inaccurate information within ninety days.
Get help with CTA reporting requirements.
Understanding how the CTA applies to you, how it will affect your business, and what you
must do to comply introduces new burdens that you may have scarce resources to address.
Terms like “beneficial owner” and “substantial control” may seem vague and confusing, further
complicating compliance efforts. But compliance is critical for business owners who want to
avoid possible sanctions.
We can help you determine whether the CTA applies to your business and the steps
needed to meet its reporting requirements. Contact us today for more information!
Legal Disclaimer – The information provided is designed for general information only and is not intended to be legal advice, nor does it create an attorney client relationship. Consult an attorney before making any legal decisions based on your individual circumstances.
