The New Era of Transparency: Navigating Beneficial Ownership Reporting Under the CTA

ARTICLE | June 13, 2024

In a bid to combat financial crimes, the Corporate Transparency Act (CTA) came into effect on January 1, 2024. This pivotal legislation mandates certain businesses to disclose Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. Failure to comply can lead to substantial penalties, including fines and imprisonment. As a result, understanding and complying with the CTA is crucial for many entities.

One of the fundamental aspects of the CTA is the concept of a 'reporting company.' This term encompasses domestic entities like corporations and limited liability companies that register their existence through filings with a secretary of state. It also includes foreign entities that register to conduct business in the U.S. However, the CTA specifies a list of exemptions, including government authorities, financial institutions, and large operating companies with significant U.S presence and revenue.

A critical element of the CTA is the definition of 'beneficial owners.' These are individuals who directly or indirectly exercise substantial control over a reporting company or control at least 25% of the company’s ownership interests. In recent updates, FinCEN clarified the treatment of corporate trustees. If a trust having a corporate trustee owns an interest in a reporting company, the beneficial owners of the corporate trustee may need to be disclosed, depending on the trustee's ownership or operating structure in relation to the reporting company.

Reporting companies must submit their BOI reports electronically through a secure filing system on FinCEN’s BOI E-Filing website. The information submitted includes sensitive details like social security numbers, driver license numbers, and passport numbers for each beneficial owner. It's important to note that these reports should only be submitted directly to FinCEN through its Beneficial Ownership Secure System (BOSS) to protect privacy and avoid potential fraud.

The CTA has set forth deadlines for filing BOI reports. Companies established or registered to do business in the U.S before January 1, 2024, must file the BOI report by January 1, 2025. Companies created or registered within 2024 have 90 days after receiving actual or public notice of their effective registration to file their initial reports. From 2025 onwards, new companies will have 30 days from receipt of the notice to file their initial reports.

Noncompliance with the CTA can lead to serious consequences. Willful failure to report complete or updated beneficial ownership information, or the provision or attempt to provide false information, can result in civil and criminal penalties. These penalties can include civil fines up to $500 for each day of violation continuation, or criminal penalties, including up to two years of imprisonment and/or a fine of up to $10,000.

The enactment of the CTA marks a significant shift in the regulatory landscape for many businesses. With severe penalties for non-compliance, understanding the CTA’s reporting requirements and the collection of relevant ownership information is essential. Entities unsure of their obligations under the CTA should consult with legal counsel or professional advisers to ensure compliance.

In conclusion, the CTA represents a substantial step towards greater transparency in the corporate world. While it imposes new obligations on businesses, it is a crucial tool in the fight against financial crimes. Entities must proactively work towards understanding and fulfilling their obligations under the CTA to ensure their continued operation and avoid potential penalties.