The implementation of the Financial Crimes Enforcement Network’s (FinCEN) Corporate Transparency Act (CTA) and the introduction of the Beneficial Ownership Information (BOI) requirements in 2024 mark significant milestones in the ongoing effort to enhance transparency and combat financial crimes, especially money laundering, within the United States. This blog explains the background of these regulations, their implications for businesses, and how they aim to curb illicit financial activities through increased transparency of true ownership of companies.
The CTA was enacted as part of the National Defense Authorization Act for Fiscal Year 2021. Its primary goal is to prevent malign actors from exploiting the U.S. corporations and limited liability companies (LLCs) to launder money, finance terrorism, and engage in other illicit activities. Before the CTA was created and enacted, the U.S. lacked a centralized registry of beneficial ownership information, making it challenging to identify the individuals who own or control legal entities.
The CTA mandates the creation of a beneficial ownership registry to be maintained by FinCEN. This registry will collect, maintain, and provide law enforcement and financial institutions with access to accurate information about the beneficial owners of companies registered to do business in the U.S. In this context, beneficial owners are defined as individuals who, directly or indirectly, own 25% or more of the equity interests in a company or exercise substantial control over a company.
Under the CTA, certain U.S. companies are required to report their beneficial ownership information (BOI) to FinCEN. This includes providing identifying details such as the name, address, date of birth, and an identification number (e.g., a passport number) for each beneficial owner. The rule is aimed at companies created in or registered to do business in the U.S., with exemptions for entities that are already heavily regulated, such as banks, credit unions, and public companies. A list of business structures that must comply, as well as the 23 exempt entities, is available on FinCEN’s website https://www.fincen.gov/boi-faqs#C_2.
The CTA and BOI requirements signify a shift towards greater transparency in the corporate world. Businesses falling under the scope of these regulations will need to comply with the reporting requirements, which includes submitting initial reports and updating their information as changes occur. This will require companies to maintain more detailed records of their ownership and control structures and to establish processes for timely compliance with the reporting obligations.
By making beneficial ownership information readily available to law enforcement and financial institutions, the CTA and BOI requirements will significantly enhance the ability to combat money laundering, terrorism financing, and other financial crimes. The registry will help authorities trace proceeds of illegal activities and take action against individuals using legal entities for illicit purposes.
Steps for LLC Owners to Comply with FinCEN New CTA Rule:
Click here to watch a short video that takes you step by step through the filing process https://ewa-llc.com/videos/filing-the-corporate-transparency-act-cta-report-for-llcs-a-step-by-step-guide/.
The introduction of the CTA and BOI requirements in 2024 is a critical step forward in the global fight against financial crime. As the implementation process unfolds, it will be essential for businesses to stay informed about their obligations and for policymakers to ensure that the system operates effectively, balancing the need for transparency with privacy and data protection concerns. Business owners and advisors can sign up for electronic updates on FinCEN’s website such that they are always informed on the latest filing requirements, deadline and changes. Consult your financial professional and/or legal professional with any, and all, concerns.
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