As Congress aims to buckle down on illicit activity, namely money laundering, increased reporting obligations could be on the horizon for your organization. Here’s what you should know.

What is the Corporate Transparency Act?

The Corporate Transparency Act, or CTA, expands on anti-money laundering laws and aims to prevent and combat money laundering, corruption, tax fraud, terrorist financing, and other illicit activity. Most existing and new U.S. corporate entities will be required to file reports with the federal government (starting January 1, 2024) regarding their beneficial owners.

Who is considered a beneficial owner of a reporting company?

This is any individual who, directly or indirectly:

• Exercises substantial control (the “Substantial Control Test”) over the company or
• Owns or controls at least 25% of the company’s ownership interests.

What information must be reported?

For the reporting company:

• Legal name of the entity
• Trade name or “doing business name,” of the entity (if applicable)
• The address of the principal place of business;
• The formation jurisdiction
• The taxpayer identification number (TIN) or employer identification number (EIN).

Covered entities must provide all of the following information regarding beneficial owners and applicants:

• Full legal name
• Date of Birth
• Address (business or residential)
• A unique identifying number (driver’s license number or passport number); and
• a scanned image of the identification document.

Who is subject to the reporting requirements?

The following entities are subject to the CTA reporting requirements:

• Domestic reporting companies- This includes corporations, limited liability companies (LLCs), and any other entity that was created with a secretary of state or similar office under the law of a state or tribe
• Foreign reporting companies- This includes all entities formed under a foreign country registered to do business in any state or tribal jurisdiction.

Who is exempt from the reporting requirements?

• Tax-exempt entities- Tax-exempt entities are excused from the requirements as long as they have 501(c)(3) status, are political organizations under Section 527(e)(1) and are charitable or split-interest trusts.
• Large operating companies- This includes any entity with more than 20 full-time employees in the U.S. and an operating presence at a physical office in the U.S.
• Inactive entities- This is any entity that existed before January 1, 2020, is not engaged in active business, is not owned by a foreign person, has not undergone an ownership change in the last 12 months, has not sent or received more than $1,000 in the last 12 months and does not hold any assets currently.

What are the penalties?

Failure to comply with the new reporting obligations will result in a civil fine of $500 per day while the violation continues and possible criminal punishment of $10,000 and up to two years in prison.

What is the effective date?

The new beneficial ownership rules take effect on January 1, 2024.

Questions? Contact us.