What is the CTA?
Enacted on January 1, 2021, the National Defense Authorization Act (NDAA) included an abundance of new anti-money laundering legislation. The NDAA is a combination of federal laws that primarily specify the annual budget for the United States Department of Defense. Included in the NDAA for Fiscal Year 2021, the Anti-Money Laundering Act of 2020 (AMLA) was enacted for the purpose of updating many of the country’s anti-money laundering laws. Believing that current legislation was not keeping the United States up to par with other developed countries, Congress deemed it was necessary to take action and update federal law to control the amount of money laundering taking place in the United States.
A key component included in the AMLA is the new Corporate Transparency Act (CTA). Behind this new legislation is Congress’ opinion that there are a number of individuals who routinely conceal their ownership of business entities. Congress believes these individuals use shell companies to finance illegal activities, such as money laundering, financing terrorist organizations, and conducting human and drug trafficking. Congress believes the lack of state laws requiring companies to identify their beneficial owners has enabled bad actors to exploit these entities to further criminal activities. The CTA was born as a result of this belief.
Who is a “beneficial owner”?
The CTA requires that all beneficial owners of certain business entities must register with the Financial Crimes Enforcement Network of the Department of the Treasury (FinCEN), in an attempt to create a national registry of beneficial owners and implement additional tracking of business entity ownership to reduce money laundering and other illegal activity. For reporting purposes, a “beneficial owner” is any individual who owns or controls at least 25% of a company or, directly or indirectly, exercises substantial control over a company. This may include senior officers of the company, individuals with authority over the appointment or removal of any senior officer or dominant majority of the board of directors (or similar body) of a reporting company, or individuals exercising direction, determination, or decision of, or substantial influence over, important matters of the company.
How does this affect the average business owner?
Business entities that were created prior to January 1, 2024, and are subject to these reporting requirements, must make an initial filing no later than January 1, 2025. The initial report must include information about each beneficial owner and must be updated within 30 days after any change to the reported information. The information that must be reported includes the legal name, date of birth, and ID photo of any beneficial owner. Any business entities formed on or after January 1, 2024, must file an initial report within 30 days of formation. Failure to report may result in civil penalties of up to $500 for each day a violation continues or has not been cured, and a fine of up to $10,000 and/or 2 years’ imprisonment for a criminal violation.
Blethen Berens is here to help:
The goal of the CTA is to change the way entities are formed and how they are tracked by law enforcement. Having the assistance of an attorney can help navigate the complex rules and assist in mitigating and avoiding serious penalties. If you would like our office to coordinate the initial filing on your behalf, please reach out to us as soon as possible. If you have questions about whether this new reporting requirement applies to your company or how to identify the beneficial owners of your company, we are also happy to assist with that analysis. Please contact our business law attorneys with any questions or concerns.
