I’ll Take Corporate Transparency Act and Beneficial Ownership Disclosure for $500
Answer: The Corporate Transparency Act (“CTA”) is part of the Anti-Money Laundering Act of 2020, which Congress added to the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”).
Question: What is the first time the federal government has stepped into entity formation involving companies that are not publicly traded?
Excuse our love of Jeopardy! While we are here though, why put your company in jeopardy? By the way, the $500 in the headline is a potential daily penalty for non-compliance with the CTA. Let’s dig in to how this supposed defense measure impacts you and your small business.
Why did Congress think the CTA is useful? The CTA requires Beneficial Ownership Disclosure (“BOD”) of all reporting companies. To keep it simple a reporting company is any corporation, LLC, or other similar entity formed with any state or foreign government. A beneficial owner of this kind of company is any person or entity with over 25% ownership.
Why is it important and how does it relate to national defense? That answer is more complex than it appears. It boils down to two main reasons. The first reason is the difficulty of tracking owners of the more than two million corporations and LLCs formed each year. The second reason is the potential to launder money created by this difficulty.
With that in mind, Congress decided now was the time to up its efforts in fighting money laundering. The current regulatory scheme allows for a lot of anonymity in business ownership for companies not regulated by the SEC. This regulatory scheme creates an ideal environment to conduct business through “shell” companies. These shell companies further distance an individual from ownership. It is easy to see how this scheme could create a laundering operation labyrinth. The complexities could make prosecution elusive. So as is often the case, the many now pay for the few.
While the regulations are not final, we do know that all newly registered entities will have compulsory BOD reporting at filing. The rule for existing entities is less clear. The United States Treasury Financial Crimes Enforcement Network (FinCEN)did propose rules for implementation in 2022 in December 2021. Comments on the proposed rule close on February 7, 2022. Either way, the time to get ahead of this change and rule is now. We will keep you updated on the final rule once it is available.
Contact The Skeen Firm today at 724-550-6970 or info@theskeenfirm.com to set up your CTA compliance plan.
*Disclaimer: this article is for informational purposes only. It is not providing legal advice. It does not create an attorney-client relationship.