In this recap, we consolidate key information about the Corporate Transparency Act (the “Act”), a significant piece of legislation that aims to combat money laundering and enhance transparency within the U.S. financial system. Adopted by Congress in December of 2020, with Final Regulations issued by the Financial Crimes Enforcement Network (FinCEN) in September 2022, the Act is set to take effect on January 1, 2024.
Purpose and Significance
The Corporate Transparency Act is designed to safeguard the U.S. financial system against illicit activities, primarily money laundering. This is achieved by mandating that entities submit beneficial ownership information reports to FinCEN.
Who Must Comply
Most small business owners will find that they need to file a beneficial ownership report. If your business filed with a secretary of state or similar office under U.S. state or tribal laws, it is a "Reporting Company." Exemptions exist for businesses already subject to disclosure regulations and "large operating companies."
Defining Beneficial Owners
Beneficial owners are individuals who either exercise substantial control over a reporting company or own/control at least 25 percent of its ownership interests. "Substantial control" is a fact-specific concept but it generally includes individuals with authority over key decisions.
Information Disclosure
Reporting companies are required to disclose detailed information about beneficial owners, including their full legal names, dates of birth, residential addresses, and unique identifying numbers. Regular updates to FinCEN are crucial to maintain compliance.
Penalties and Safe Harbor
The Act imposes both civil and criminal penalties for non-compliance. A safe harbor provision offers protection for businesses making good-faith efforts to comply, allowing them to rectify errors and avoid severe penalties.
Best Practices for Compliance
Businesses should establish internal compliance procedures, regularly review and update information, conduct periodic compliance audits, and seek legal and professional guidance.
Understanding and adhering to the Corporate Transparency Act is essential for businesses to prevent financial and legal consequences. As the Act's effective date approaches, it is imperative for business owners to stay informed and proactively establish compliance measures. Chipman Mazzucco Emerson is ready to assist businesses in navigating this regulatory landscape and ensuring they meet the requirements of this new legislation.