In 2021, a pivotal legislative move by Congress saw the introduction of the Corporate Transparency Act (CTA). This statute will initiate federal disclosure mandates for a vast number of private entities previously exempted from revealing ownership details. AEGIS Law anticipates the official establishment of the CTA guidelines to unfold later in 2022.
For those who’ve incorporated a limited liability entity for their enterprises, it’s essential to recognize the possibility of being categorized as a “reporting entity”. Such entities will now need to share specific data with the Financial Crimes Enforcement Network (FinCEN), which operates under the purview of the U.S. Treasury Department. Stringent consequences await those who do not adhere to the CTA, including substantial financial penalties and potential imprisonment. Hence, grasping the intricacies of the CTA and upcoming directives is crucial for all business proprietors.
Congress introduced the CTA with a goal to curb illicit activities facilitated by undisclosed shell and front companies, such as money laundering and tax evasion. The CTA mandates disclosure of individuals controlling or owning a significant stake in a company, as well as its organizers. Current estimates suggest FinCEN’s CTA guidelines will impact about 30 million existing businesses and an additional several million annually. Thus, any new business or acquisition might come under the CTA’s reporting purview.
Though the official reporting guidelines from FinCEN are still pending, the draft offers insights into key areas: the entities required to comply, the type of information that should be disclosed, data access protocols, reporting deadlines, and the repercussions of non-compliance.
Who is bound by the CTA’s stipulations?
The CTA mandates “reporting entities” (both local and international) to provide details on “beneficial owners” and “company registrants” to FinCEN. Typically, local entities formed through a state Secretary’s documentation and foreign entities registered for U.S. operations fall under this category. However, there are several exemptions, mainly larger firms already under regulatory scrutiny, service-oriented entities, and non-profits. For instance, companies with an active U.S. office and substantial financial returns are exempted.
What should “reporting entities” disclose to FinCEN?
Entities are required to provide details about the organization, its significant stakeholders, and registrants. Identifiable information includes the company’s official name, alternate business names, its inception jurisdiction, and tax-related identification details. Pertinent details about beneficial owners and registrants, such as their full names, birth dates, contact details, and identification references, should also be included.
What is the reporting timeline to FinCEN?
Reporting deadlines vary based on the company’s registration date and the nature of the report. Entities established or registered before the CTA’s official launch have a year to share initial details with FinCEN. Those set up post-launch must report within two weeks of establishment. Any amendments to previously shared details should be updated within a month, while corrections to erroneous submissions should be made within two weeks from the discovery.
What if the CTA’s stipulations are ignored?
Deliberate misinformation or failure to provide requisite details to FinCEN can lead to both civil and criminal repercussions. Non-compliance could result in daily penalties or more severe fines and potential jail time.
Next Steps
While awaiting FinCEN’s definitive guidelines on the CTA, AEGIS Law is vigilantly tracking the developments. Should you need clarity on the CTA’s implications for your business or the reporting mandates, our expert team at the AEGIS Corporate & Securities practice are ready to assist.  Feel free to e-mail Scott Levine at [email protected].

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