The Corporate Transparency Act (CTA) was enacted as part of the National Defense Authorization Act for Fiscal Year 2021 and aims to improve the transparency of corporate ownership in the U.S. by requiring certain companies to disclose their beneficial owners to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). The primary purpose of the CTA is to prevent money laundering, terrorist financing, tax evasion, and other illicit activities by creating a centralized, searchable database of beneficial ownership information.
Key Provisions of the Corporate Transparency Act:
- Disclosure Requirements:
- Certain small corporations and limited liability companies (LLCs) are required to report their beneficial owners. A beneficial owner is defined as an individual who owns or controls at least 25% of a company or exercises substantial control over it.
- The information to be reported includes the name, date of birth, address, and an identification number (e.g., passport or driver’s license number).
- Exemptions:
- Some entities are exempt from the CTA’s reporting requirements, including:
- Large operating companies with over 20 employees, more than $5 million in annual revenue, and a physical presence in the U.S.
- Regulated entities like banks, credit unions, and insurance companies.
- Certain inactive entities (e.g., shell companies without significant assets or business operations).
- Privacy and Access:
- The beneficial ownership information will not be publicly accessible. Access will be restricted to authorized government agencies (e.g., law enforcement, regulators) and financial institutions conducting due diligence for anti-money laundering purposes.
- Implementation Timeline:
- The CTA’s disclosure requirements are being implemented through regulations issued by FinCEN. Companies that exist before the rule’s effective date will have two years to comply, and newly formed entities will have to report beneficial ownership information at the time of incorporation.
- Penalties for Non-Compliance:
- Failure to report or providing false or incomplete information can result in significant penalties, including fines up to $500 per day and criminal penalties for willful violations, such as imprisonment for up to 2 years.
Impact:
- The CTA is designed to close gaps in U.S. corporate transparency and make it harder for bad actors to hide behind anonymous corporate structures.
- It affects a wide range of companies, particularly small businesses, by requiring them to disclose sensitive ownership data, which previously could remain hidden.
For direct access to the full text and additional information, you can read the official document through the following link to FinCEN’s website:
FinCEN Corporate Transparency Act Overview
This page includes both the text of the law and other resources on the implementation of the act.