IMPORTANT DECEMBER 3, 2024, UPDATE: THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TEXAS ISSUED A PRELIMINARY INJUNCTION AGAINST THE FEDERAL CORPORATE TRANSPARENCY ACT AND THE REPORTING RULES. THE REPORTING REQUIREMENTS HAVE BEEN SUSPENDED UNTIL FURTHER ORDER OF THE COURT.
The Corporate Transparency Act (CTA), which was enacted as part of the National Defense Authorization Act in January 2021, aims to combat money laundering, terrorism financing, and other financial crimes by increasing transparency in corporate ownership. Here’s a breakdown of the key aspects of the CTA:
- Beneficial Ownership Reporting: The CTA requires certain businesses to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). Beneficial owners are individuals who own or control a substantial interest in the company, typically defined as those who own at least 25% of the company or have significant control over it.
- Who Must Report: The reporting requirement applies to most domestic and foreign corporations, limited liability companies (LLCs), and similar entities created or registered to do business in the U.S. However, there are some exemptions for entities such as publicly traded companies, certain regulated entities (e.g., banks, insurance companies), and entities with a physical presence and more than 20 employees that meet certain financial thresholds.
- Information Required: Companies must provide the names, addresses, dates of birth, and identification numbers (like a passport number or driver’s license number) of their beneficial owners. This information is intended to create a centralized database that law enforcement agencies can access to investigate financial crimes.
- Access and Privacy: While the information collected by FinCEN will be used primarily for law enforcement purposes, access is restricted. Certain authorities, such as law enforcement agencies and financial institutions conducting due diligence, can access the data. However, it is not publicly available to ensure privacy and protect against misuse.
- Compliance and Penalties: Companies that fail to comply with the reporting requirements face substantial penalties. These penalties can include fines and potential criminal charges, making it crucial for businesses to adhere to the CTA’s regulations.
Overall, the CTA aims to reduce the ability of illicit actors to use anonymous shell companies to hide their activities and increase transparency in corporate ownership, thereby supporting efforts to prevent financial crimes. The Biggers Law Firm counsels clients on the applicability of this act, as well as guiding them in compliance with the necessary reporting responsibilities.