Congress’ passing of the National Defense Authorization Act of 2021 included new reporting requirements for certain private companies in the United States. The Corporate Transparency Act (the “CTA”), designed to aid the United States in combatting money laundering and other financial crimes, requires all applicable U.S. companies to regularly file information regarding their “beneficial ownership” with the Financial Crimes Enforcement Network (“FinCEN”), a division of the U.S. Treasury Department. The new regulations represent a step towards limiting the existence of anonymous corporate entities in the United States and will not be fully enacted until January of 2022.
Under the CTA, companies will be required to file annual reports that detail the name, date of birth, current address, and unique identification information (such as a passport or driver’s license number) of all “beneficial owners” of the company to FinCEN. Further, all private corporations or LLCs must comply unless the company falls under any of the following exemptions:
- Company employs more than 20 individuals or reports revenues of more than $5 million on tax returns
- Company is a financial service institution, investment, accounting, or securities trading firm, bank, or credit union
- Churches, charities, and other nonprofit organizations
CTA violations include civil penalties of up to $500 per day; criminal penalties up to $10,000; and/or imprisonment for up to two years.
Beneficial owners are any individuals who, either “directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise” have “substantial control over the entity” or “own or control not less than 25 percent of the ownership interest of [an] entity.” The CTA carves out the following five exceptions to the Beneficial Owner definition:
- A minor child if the child’s parents or guardians have otherwise properly reported their information
- Nominees, intermediaries, custodians, or agents acting on behalf of another individual
- Employees whose control is derived solely because of employment status
- An individual whose only interest is through a right of inheritance
- Creditors of an entity
Entities that are formed after the CTA’s enactment will be required to file the reporting requirements mentioned above at the time of registration. Entities that have been in existence prior to the enactment of the CTA will be required to provide the reporting requirements in a “timely manner . . . not later than two years after the effective date of the regulations . . . .”
Although compliance with the CTA will not start until at least January 2022, preparing for these new compliance requirements should remain a top priority for all business owners. KDDK will continue to monitor developments regarding CTA compliance, including filing requirements, and provide updates as available.