Mike Giudice
Understanding the Who and Why of CTA and FinCEN
What is the Corporate Transparency Act (CTA): Objectives and Impact
The Corporate Transparency Act is a legislative measure designed to enhance financial transparency and curb the misuse of corporate structures for illicit activities, including money laundering and terrorism financing. Primarily targeting small businesses, it mandates reporting beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), a bureau within the U.S. Department of the Treasury.
The Global Push for Transparency: Rationale Behind the CTA
The CTA is part of a worldwide movement. Its goal is to equip law enforcement and regulatory agencies with crucial data to track financial flows and pinpoint the individuals behind corporate entities. This initiative responds to the increasing complexity of financial crimes in the global economy. It achieves this by supporting law enforcement investigations and prosecutions by synthesizing data to identify and address financial crime risks.
Understanding the Beneficial Ownership Information (BOI) reporting requirements
Who Must File a Report Under the CTA?
The CTA applies to U.S. legal entities and foreign entities registered to do business in the U.S., like corporations and LLCs. However, certain entities, such as publicly traded companies, are exempt due to existing disclosure obligations.
Understanding Beneficial Ownership Information (BOI) Reporting
‘Beneficial owners’ are defined as individuals who exercise substantial control or own a ‘significant portion’ (at least 25%) of a company. The CTA requires detailed reporting of legal names, birthdates, addresses, and identifying numbers to ensure transparency in business ownership. If the individual falls into any of the categories below, the individual is exercising substantial control:
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- The individual is a senior officer.
- The individual has the authority to appoint or remove certain officers … of the reporting company.
- The individual is an important decision-maker for the reporting company.
- The individual has any other form of substantial control over the reporting company as explained further in FinCEN’s Small Entity Compliance Guide.
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Reporting Obligations for Required Businesses
Eligible businesses must file a report with FinCEN, providing information about their beneficial owners. This process also demands prompt updates within 30 days of any changes, ensuring the database remains current.
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- Filing BOI Reports: Filing is done through FinCEN’s electronic system, where accuracy and completeness are crucial. If inaccuracies are reported, they must be corrected within 30 days to avoid potential penalties.
- Ongoing Updates: Businesses and owners must continually update the report during many circumstances. Major changes include mergers, transfer of ownership, or inheritance of a business. Examples of minor changes are renewing your driver’s license (or identification used to fill out the report), changing of address, and/or updating your DBA Doing Business As). With no difference in the penalty for failure to update the report, it’s crucial to keep the reporting requirements in mind.
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Understanding the Consequences of Non-Compliance
Non-compliance can lead to significant fines and/or imprisonment. This enforces the seriousness of these regulations and the liability that extends to individuals within the company, including beneficial owners and senior officers. Willful violations of the BOI reporting requirements “may be subject to civil penalties of up to $500 for each day that the violation continues. That person may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000.” The $500 penalty per day for non-compliance currently has no maximum fine that can be levied.
The type of potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.
Who is Liable for Non-Compliance
Individuals who willfully file a false or fraudulent beneficial ownership information report on a company’s behalf may be subject to the same civil and criminal penalties as the reporting company and its senior officers. ‘Beneficial owners’ or a company can be held liable for willfully causing a reporting company’s failure to submit complete or updated beneficial ownership information to FinCEN. This would include a beneficial owner or company applicant who willfully fails to provide required information to a reporting company.
Small Business Compliance: Navigating the FinCEN Guide
FinCEN’s Small Entity Compliance Guide is an amazing resource that breaks down the CTA’s complexities. It offers tools, checklists, and straightforward explanations, specifically aiding small businesses in understanding and complying with the BOI reporting rule. Links are shared below to access this information.
Conclusions from FinCEN’s FAQ
The Role of Certified Public Accountants (CPAs) in BOI Reporting
Ultimately state law dictates if assisting in BOI Reporting constitutes practicing law. Only after an individual state’s determination, CPAs can decide the type of assistance in preparing BOI reports they are willing to offer. Nonetheless, the ultimate responsibility for accuracy and submission rests with the business owner or an authorized representative, even if a professional assists in reporting.
Anticipating the Future: Trends in Financial Transparency
The corporate reporting landscape is expected to evolve, leading to more stringent regulations and the adoption of technology to aid the reporting process. As the reporting compliance is continuously evolving, keep up to date on FinCEN’s website linked below.
Final Thoughts
Strategic Compliance and Future Updates
Although FinCEN has started accepting BOI reports, it is highly recommend waiting to file. There are benefits to delaying the filing process, here are a few key points.
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- Early filers are facing technical issues with filing the reports. Waiting allows for a smoother process, as any initial technical glitches are likely to be resolved, saving you time, and filing fees in potential updates.
- FinCEN is in the process of releasing more detailed instructions and guidance in the coming weeks. This initial wave is just the beginning. By delaying submission, we will have access to more comprehensive information, ensuring a more accurate and compliant report.
- With ongoing legislative discussions, there is a possibility of extending the current reporting timeline. A delayed submission could benefit from these potential changes, offering additional time for preparation and compliance.
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Need Assistance?
If you want more clarity around these requirements or assistance with the reporting process, click here to have our team is here to offer guidance and support. Feel free to subscribe to our e-mail listing to receive future updates and check out the additional resources.
Wow! Thanks, this was really informative.