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The Corporate Transparency Act ("CTA"): Enhanced Federal Anti-Money Laundering and Countering the Financing of Terrorism (AML/ CFT) Legislation

Posted by Lanre J. Abiola | Nov 30, 2023

The Anti-Money Laundering Act of 2020 (AMLA) established the Corporate Transparency Act (CTA), which creates a new beneficial ownership information reporting requirement as part of the United States government's efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies and/or other nontransparent ownership structures. Beneficial ownership information (BOI) refers to identifying information about the individuals who directly or indirectly own or control a company. 

Who is a beneficial owner?

A beneficial owner is a person who either directly or indirectly: (1) exercises substantial control (i.e., serving as a senior officer such as an executive, has authority to appoint or remove officers or directors, makes important decisions, and has any other kind of substantial control) over the reporting company; or (2) owns or controls at least 25% of the reporting company's ownership interests.

What companies will be required to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN)?

Under the CTA, companies required to report are called reporting companies. There are two types of reporting companies:

  • Domestic reporting companies are corporations, limited liability companies, and any other entities created by filing a document with a secretary of state or any similar office in the U.S.
  • Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the U.S. by filing a document with a secretary of state or any similar office, with their principal place of business in any U.S. state or Tribal jurisdiction where they conduct business.

Some entities, and their subsidiaries, are exempt from the reporting requirements.

What companies are exempt from the reporting requirements under the CTA?

23 types of entities are exempt from the beneficial ownership information reporting requirements. These entities include publicly traded companies meeting specific requirements, many nonprofits, and certain large operating companies. The following entities, and their subsidiaries, are exempt from the beneficial ownership information reporting requirements: Securities reporting issuer; Governmental authority; Bank; Credit union; Depository institution holding company; Broker or dealer in securities; Securities exchange or clearing agency; Other Exchange Act registered entity; Investment company or investment adviser; Venture capital fund adviser; Insurance company; State-licensed insurance producer; Commodity Exchange Act registered entity; Accounting firm; Public utility; Financial market utility; Tax-exempt entity; and Large operating company.

When do I need to report my company's beneficial ownership information to FinCEN?

A reporting company created or registered to do business in the U.S. before January 1, 2024, will have until January 1, 2025 to file its initial beneficial ownership information report. 

Additionally, a reporting company created or registered on or after January 1, 2024, to conduct business in the U.S. will have 30 days to file its initial beneficial ownership information report. This 30-day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.

Penalties for Violating the CTA

Companies subject to the CTA must comply with the law. Reporting companies that willfully provide false information to FinCEN or fail to report complete information to FinCEN could face civil and criminal penalties if they disregard their beneficial ownership information reporting obligations. Although many U.S. companies aren't currently under any federal obligation to identify the true beneficiary of their operations, that will change after January 1, 2024 when reporting companies will be required to report their beneficial ownership information to FinCEN.

Accordingly, the CTA will make it harder for bad actors to hide or benefit from the following activities, in no particular order: money laundering; fraud; cybercrime, including relevant cybersecurity and cryptocurrency; and transnational criminal activity.

To learn more about reporting your beneficial ownership information to FinCEN, contact Prestige Law Office, LLC. Give the firm a chance to help litigate or settle your legal business issues by scheduling a consultation and taking the first step in securing your future.

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About the Author

Lanre J. Abiola

Mr. Lanre Abiola founded Prestige Law Office, LLC, with the objective of providing individuals, entrepreneurs, and small and mid-sized businesses with high-quality, cost-effective legal services to achieve the best possible result for clients at a fair cost. Mr. Abiola believes in vigorous advocacy on clients' behalf.

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