Congress recently passed the Corporate Transparency Act (CTA) which will require companies to disclose their “beneficial owners” to the U.S. Department of Treasury’s Financial Crimes Enforcement Network. While these new regulations will not come into effect until 2022, the CTA will drastically change the way privately-owned companies conduct business.
What are the Requirements under the CTA?
This new legislation requires that companies report individuals that own 25% or more of ownership interests or serve as agents or nominees of the company. There will be additional reporting requirements for any changes in ownership of the company. The information to be reported includes names, birth date, address, and some form of identification, such as a passport.
While this law will unambiguously cover limited liability companies and corporations, it is still to be determined whether partnerships and trusts will also be subject to these regulations. Any companies that were formed prior to the adoption of these new requirements in 2022 will have a longer period to file the initial reports than companies that are formed after the law’s adoption.
Who Will Have Access to these Records and What If I Don’t Comply?
The reported information will be available to the government for law enforcement, intelligence, and national security purposes. Financial institutions may also be able to access these records for anti-money laundering purposes.
Non-compliant companies will be subject to significant monetary penalties and companies that file false reports will face possible imprisonment. Willfully not filing these reports may also result in imprisonment.
What’s the Purpose of the CTA?
Congress’ main objective in passing this law is to combat money laundering. Using shell companies to hold real estate is a common tactic in money laundering schemes, so requiring companies to report individuals that own and control the company will allow law enforcement to trace the natural persons behind a shell company.
Many people have been critical of the CTA’s passing, but similar legislation is become popular around the world and has already been passed in Germany and parts of Canada. Congress’ concern was that if it did not act quickly to pass this legislation, the U.S. would become a safe haven for anonymous real estate purchasers.
While this legislation is newly passed, many of the logistics of reporting information to FinCEN have yet to be worked out. But as the adoption of CTA regulations approaches, more information will become available on who has to report this information and how.