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Throughout history, businesses created in the United States were not required to maintain transparency about the names of their shareholders or Ultimate Beneficial Owners (UBOs) with the state. The secrecy of this information may seem harmless, but the truth is beyond that.
The truth is that a lack of transparency led to many problems, among which anonymous shareholders controlling businesses was one of the biggest issues. These shareholders often created shell companies to disguise their illicit funds.
Looking at these circumstances, Congress realized the need to collect beneficial ownership information (BOI) from business entities in the US. Here is all you must know about this new endeavor.
About the Corporate Transparency Act
CTA, better known as the Corporate Transparency Act, is a recent legal endeavor in the US federal law that aims to increase business ownership transparency. The companies that come to life in the US must provide the Financial Crimes Enforcement Network (FinCEN) with information regarding the beneficial owners.
Before the establishment of CTA, there were many proposals with the aim of serving the same purpose. However, these proposals, such as the Incorporation Transparency and Law Enforcement Assistance Act (ITLEA), could not pass because people argued that business regulation in the US must remain a state matter.
This information includes the full name, date of birth, current address, and an identification number such as the ones from a passport or a driver’s license. You must also report any changes to FinCEN that fall under the Anti-Money Laundering Act of 2020 (AMLA) if needed.
Objectives of CTA
The Corporate Act of 2024 works with the aim of boosting the efforts of the AML. From improving transparency to enhancing accountability, there are several purposes served by the CTA to prevent illicit activities in the business world.
Firstly, the CTA requires business entities to report to FinCEN about their beneficial owners. This information is gathered in an effort to avoid money laundering, tax evasion, terrorist financing, and several other financial crimes.
This act also makes it easier for financial institutions such as the FinCEN to enhance accountability through a streamlined process for investigation and enforcement efforts. This way, the process of compliance can also become easier for firms and businesses. Little by little, these efforts also play a significant role in enhancing national security and defying several risks.
CTA Compliance Process
Although the reporting requirements will come into effect beginning January 1, 2024, one thing to keep in mind is that new and existing companies will have different reporting deadlines. This means that entities existing already must submit their reports to FinCEN by January 1, 2025. However, entities formed after January 1, 2024, will have only 30 days to file for compliance with CTA.
It is crucial to bear in mind that businesses that fail to comply with these requirements or file fake information may face up to $10,000 fines and imprisonment for up to two years. You can avoid such harsh circumstances by keeping an eye on your calendars and taking action accordingly.