We have written on this in the last few months, but it is such an important change in reporting law that we think its worth touching on again.
In a move towards enhanced transparency and accountability, the Corporate Transparency Act (CTA) has emerged as a significant legislative development. Business owners across the United States now face the imperative to report beneficial ownership information. This marks a pivotal step in combating illicit activities such as money laundering, terrorism financing, and other forms of financial crime.
The Corporate Transparency Act:
The Corporate Transparency Act, signed into law in December 2020, mandates that certain businesses disclose their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). Beneficial owners are individuals who directly or indirectly own or control 25% or more of a company's ownership interests or have significant control over the entity.
Key Reasons for Reporting Beneficial Owners:
Fighting Financial Crimes: Reporting beneficial owners is a crucial tool in the fight against financial crimes. By providing authorities with a clearer picture of a business's ownership structure, it becomes more difficult for individuals with malicious intent to exploit the anonymity often associated with business entities.
Enhanced National Security: National security is a top priority, and the identification of beneficial owners plays a pivotal role. This information helps law enforcement agencies prevent and investigate activities that could pose a threat to the country's security.
Preventing Money Laundering: Money laundering is a pervasive issue globally, and businesses are often unwittingly used as vehicles for such activities. The disclosure of beneficial ownership aids in curbing money laundering by making it harder for criminals to hide behind complex corporate structures.
Ensuring Fair Business Practices: Transparency is fundamental for fostering fair business practices. Knowing who owns and controls a business promotes a level playing field, allowing for healthy competition and preventing unfair advantages that might arise from undisclosed ownership interests.
Global Anti-Corruption Efforts: The Corporate Transparency Act aligns with international efforts to combat corruption. By adhering to global standards, the United States contributes to a more coordinated and effective approach in the global fight against corruption and financial crimes.
The Corporate Transparency Act (CTA) imposes penalties for non-compliance with the requirement to report beneficial ownership information. Business owners who fail to comply with the reporting obligations may face both civil and criminal penalties. Here are the potential penalties:
Civil penalties may be imposed for violations related to reporting requirements under the CTA.
The specific amount of civil penalties can vary, but they are designed to be significant enough to act as a deterrent.
In addition to civil penalties, criminal penalties may be imposed for willful violations of the reporting requirements.
Criminal penalties can include fines and imprisonment for individuals found guilty of intentionally providing false or fraudulent beneficial ownership information.
Individuals who are responsible for the compliance of the business entity, such as officers, directors, and other relevant individuals, may be personally liable for non-compliance.
Personal liability underscores the importance of ensuring accurate and timely reporting of beneficial ownership information.
Ineligibility for Federal Contracts
Non-compliant entities may face consequences beyond fines and penalties. The CTA includes provisions that make businesses ineligible for federal contracts if they fail to comply with the reporting requirements.
For instance, the failure to comply with the statutorily-mandated reporting timeframes regarding the filing of initial or updated reports could result in a $500-per-day penalty (up to $10,000) and up to two years of imprisonment. Additionally, any person who, without authorization, knowingly discloses or uses beneficial ownership information (BOI) can be fined $500 per day (up to $250,000) and imprisoned for up to five years.
It's essential for business owners to be aware of these potential penalties and take proactive steps to ensure compliance with the Corporate Transparency Act. Engaging legal counsel or compliance professionals may be advisable to navigate the reporting process and avoid the consequences associated with non-compliance. As the implementation of the CTA progresses, staying informed about any updates or changes to the regulatory landscape is crucial for business owners to meet their obligations and mitigate the risk of penalties.
Your attorneys or CPAs will be the best to talk to about making sure your filings are accurate.