The Corporate Transparency Act (CTA) was passed by Congress to enhance transparency in corporate ownership. Enacted as part of the Anti-Money Laundering Act of 2020, the CTA aims to combat illicit activities such as money laundering, terrorist financing, and other financial crimes by requiring businesses to disclose their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN).
What does the CTA do?
The CTA mandates that certain entities, primarily corporations, limited liability companies (LLCs), and similar entities, report information about their beneficial owners. A beneficial owner is defined as an individual who directly or indirectly exercises substantial control over an entity or owns or controls at least 25% of the ownership interests in the entity.
Elements Impacting RMAI Members
- Reporting Requirements:
- Who Must Report: Most companies structured as corporations or LLCs will need to comply with the reporting requirements.
- Beneficial Ownership Information: Companies must report the names, dates of birth, addresses, and unique identifying numbers (e.g., driver’s license or passport numbers) of their beneficial owners to FinCEN.
- Initial and Updated Reports: Companies must file an initial report upon formation or registration and update the report within a specified period if there are changes in beneficial ownership.
- Compliance Deadlines:
- Effective Dates: Companies that are required to comply (“reporting companies”) must file their initial reports by the following deadlines:
- Existing companies:Reporting companies created or registered to do business in the United States before January 1, 2024, must file by January 1, 2025.
- Newly created or registered companies: Reporting companies created or registered to do business in the United States in 2024 have 90 calendar days to file after receiving actual or public notice that their company’s creation or registration is effective.
- Ongoing Obligations: Debt collection companies must stay vigilant about maintaining up-to-date information and filing timely updates to avoid penalties.
- Penalties for Non-Compliance:
- Civil and Criminal Penalties: Failure to comply with the CTA’s reporting requirements can result in significant civil and criminal penalties, including fines up to $500 per day of non-compliance and imprisonment for willful violations.
- Confidentiality and Security:
- Data Protection: The reported beneficial ownership information will be stored in a secure, non-public database maintained by FinCEN, accessible only to authorized government authorities and financial institutions under certain circumstances.
- Impact on Business Operations:
- Due Diligence: Companies may need to enhance their internal due diligence processes to accurately identify and report beneficial owners.
Next Steps for Compliance
- Review the CTA Requirements: Familiarize yourself with the full scope of the CTA and its reporting obligations.
- Identify Beneficial Owners: Conduct a thorough assessment to identify all individuals who meet the beneficial ownership criteria.
- Prepare for Reporting: Set up systems to collect and report the required information accurately and timely.
- Monitor Regulatory Updates: Stay informed about FinCEN’s final regulations and any additional guidance provided.
We urge all members to take proactive steps to ensure compliance with the Corporate Transparency Act.
To learn more visit: FinCEN’s Small Entity Compliance Guide walks small businesses through the requirements in plain language.
Filers can also view informational videos and webinars, find answers to frequently asked questions, connect to the contact center, and learn more about how to report at www.fincen.gov/boi.
RMAI will have an hour-long education session at the 2024 Executive Summit dedicated to the Corporate Transparency Act on Tuesday, August 6th. The Executive Summit is August 6-8, 2024 at the Hyatt Regency Tamaya in Santa Ana Pueblo, New Mexico. Event details, including registration can be found here.
This Member Alert is intended for members of the Receivables Management Association International, is for informational purposes only, and is in no way intended to provide legal advice. Members are encouraged to consult with an attorney of their choice for legal advice concerning this matter.