New Corporate Transparency Act
On January 1 , 2021 , the Corporate Transparency Act ( CTA ) became federal law . The CTA , designed to prevent money laundering and terrorist and other criminal financing through shell companies , will make sweeping changes to the corporate legal landscape in the United States .
While there are numerous details still to be determined , the CTA will require most U . S . corporations , limited liability companies , and “ similar ” entities to disclose , for the first time , detailed ownership information . Starting January 1 , 2022 , all new entities subject to the CTA ’ s reporting requirements will be required , upon formation , to report the full legal name , date of birth , current address , and a unique identifying number for each beneficial owner of the entity to the Financial Crimes Enforcement Network ( FinCEN ). Existing entities subject to the CTA ’ s disclosure requirements will have two years to report this information . In addition , changes to beneficial ownership must be reported within a year of the change , and “ applicants ” who form these entities are also required to report . Reports to FinCEN under the CTA will generally be considered sensitive information that should be kept confidential , but there are some exceptions , e . g ., disclosure to federal , state , or foreign law enforcement ( subject to specific conditions ) or financial institutions ( with consent ). There may be both civil and criminal penalties for failure to comply with reporting obligations .
Guidance is still to come on what entities will be subject to the CTA ’ s reporting requirements , but the statute itself indicates that corporations , limited liability companies , and other “ similar ” entities organized under state or tribal law will be required to report . Foreign entities that register to do business under state or tribal law will also be subject to the requirements . The CTA contemplates some specific exceptions , which largely apply to more substantial or highly- regulated businesses ( e . g ., insurance companies , public utilities , financial institutions , public companies , and registered investment companies ). It is unclear at this point whether partnerships or trusts may be considered “ similar ” entities to which the CTA ’ s reporting requirements apply .
Businesses should prepare to comply with the new CTA requirements . Implementing regulations will be forthcoming from the U . S . Department of the Treasury .
16 DITCHMEN • AUGUST 2021