ABOUT

The Corporate Transparency Act (CTA) is a significant piece of legislation in the United States, aimed at combating money laundering, the financing of terrorism, and other illicit activities. It was enacted as part of the National Defense Authorization Act for Fiscal Year 2021. The CTA requires certain businesses to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.

Here are key points about the Corporate Transparency Act:

1. Beneficial Ownership Reporting: The core of the CTA is to require corporations, limited liability companies (LLCs), and similar entities to file information about their beneficial owners with FinCEN. A beneficial owner is defined as any individual who, directly or indirectly, exercises “substantial control” over the entity OR owns or controls at least 25% of the ownership interests of the entity.

2. Substantial Control: Under the Corporate Transparency Act (CTA), the term "substantial control" is used to identify individuals who have significant influence over the reporting company, but the specific definition of what constitutes "substantial control" can be somewhat broad and is designed to capture a range of individuals who have the ability to influence or direct the actions of the entity. Generally, a person with substantial control could include, but is not limited to, the following:
   a. Senior Officers or Executives: This includes individuals in high-level positions within a company, such as CEOs, CFOs, or any other officers who have significant decision-making authority over the company's operations, financial management, or strategic direction.
   b. Individuals with Board Authority: Members of the board of directors or any equivalent governing body who have the power to influence or direct the actions of the company.
   c. Persons with Influence Over Important Decisions: This can include individuals who, regardless of their official title or position, have the ability to exercise significant influence over important decisions concerning the company. This might encompass individuals who have the power to direct or determine significant matters affecting the company, such as financial transactions, operational strategies, or other major business activities.

3. Aim: The CTA aims to ensure that those with actual control or influence over a company, even if they do not have a formal title or direct ownership stake, are identified. This is part of the effort to prevent individuals from using complex corporate structures to obscure ownership and control for the purpose of illicit activities, such as money laundering or financing terrorism.

4. Reporting Requirements: Entities subject to the CTA must provide FinCEN with the name, date of birth, address, an identification number (such as a driver's license number or passport number), and a picture of the driver’s license or passport of each beneficial owner.

5. Exemptions: Certain entities are exempt from these reporting requirements, including publicly traded companies, certain regulated financial institutions, and entities that operate in specific industries that already have significant regulatory oversight.

6. Penalties: The penalties apply to both the reporting companies that fail to submit required information about their beneficial owners to the FinCEN and to individuals who willfully provide false or fraudulent beneficial ownership information:
   a. Civil Penalties: Entities or individuals that fail to report accurate beneficial ownership information or fail to update their information as required may face civil penalties of up to $500 for each day the violation continues after the date on which the reporting was due.
   b. Criminal Penalties: Willful failure to report accurate beneficial ownership information or willfully providing false or fraudulent information to FinCEN can result in criminal penalties. These include fines of up to $10,000 and/or imprisonment for up to two years.

7. Deadline for Reporting:
   a. If the entity is formed after January 1, 2024 then the information must be submitted within 90 days.
   b. If the entity was formed prior to January 1, 2024 then the information must be
   submitted no later than January 1, 2025.
   c. Updating prior reports – Generally within 30 days of any change, such as new director, new executive, the resignation of a director, change of a home address.