At the end of September, the Financial Crimes Enforcement Network, a division of the U.S. Treasury Department commonly known as FinCEN, published long-anticipated regulations on compliance with the Corporate Transparency Act (CTA), which became law as part of the National Defense Authorization Act for fiscal 2021. The purpose of the CTA is to combat money laundering, terrorist financing, fraud and other illegal activity by creating a place where law enforcement agencies can find out who owns or controls certain smaller organizations operating in the United States.
The CTA, as implemented by these new regulations, will require any corporation, limited liability company or other business created by a filing with a state government (and similar foreign businesses operating in this country as well) to file information with FinCEN about any individuals who control a company or own at least 25 percent of it and to update that information whenever it changes. Information is also required about individuals who actually make the filing to create the entity. Reflecting the seriousness Congress has placed on this issue, the CTA imposes civil penalties for noncompliance of up to $500 per day and criminal penalties of up to $10,000 and up to two years in prison.
Certain businesses are exempt from the filing requirement because Congress determined that either they are already required to provide ownership and control information because they are regulated businesses or the risk they would be used for criminal activity was low enough not to require filing with FinCEN. Included in the 23 categories of entities exempt from filing, in addition to regulated entities, are nonprofit organizations, businesses that are currently inactive and businesses that qualify as a “large operating company” under the regulations because they employ more than 20 people in the U.S., they have a physical office in this country and they have filed a tax return showing more than $5 million in gross receipts or sales during the prior year.
Filings will be required for new business entities created on or after January 1, 2024. Entities created before that date will need to file ownership and control information by January 1, 2025.
The CTA imposes significant limits on who is allowed to access this information and under what circumstances. FinCEN is still working on regulations to implement those restrictions.
The Bose McKinney & Evans Business Services team will be monitoring developments in the implementation of the CTA and communicating with specific clients about filing requirements applicable to them. If you have questions about these new filing requirements as we approach the effective date, the attorneys in the Business Services Group are available to provide guidance about the new regulations.