By: Neil M. Meyer
The Corporate Transparency Act of 2019 (H.R. 2513) (“CTA”) was enacted by Congress to combat money laundering, the financing of terrorism and financial fraud by requiring corporations, limited liability companies and similar entities to report to the U.S. Department of Treasury, Financial Crimes Enforcement Network (“FinCEN”) the names of its beneficial owners. The information provided is to be kept secure and not available to the public, but made available to authorized government authorities for law enforcement, national security or intelligence purposes. No filing is required until the Secretary of the Treasury has issued regulations.
Who must report.
Any corporation, limited liability company or similar entity formed under the laws of a State or Indian Tribe or a non-United States entity eligible for registration or registered to do business as a corporation or limited liability company under the laws of a State or Indian Tribe. A company is exempt from the act’s requirements if it is: (a) publicly traded, (b) closely regulated by the federal government (e.g a bank, credit union, security broker or similar business), (c) owned by an exempt company, (d) has more than 20 employees, and has previously filed a federal tax return, and has 5 million dollars in receipts or sales and is present in the United States, or (e) is a church, charity or non-profit.
What must be reported.
Each reporting entity is required to provide FinCEN with a list of its beneficial owners, disclosing their full legal name, date of birth, current address, and a unique identifying number from a non-expired passport, personal identification card or a driver’s license. The filing is to be done annually with updated information showing any changes in the beneficial owners. Beneficial owners are defined as a natural person who directly or indirectly exercises substantial control over the entity, or owns 25% or more of the equity, or receives substantial economic benefit from the entity. There are exceptions to the definition, which include, a minor child, a nominee, intermediary or custodian, an employee whose control and economic benefits derive solely from their employment status, a person whose interest is through a right of inheritance, or a creditor, with certain exceptions. Substantial economic benefit and substantial control are not defined terms. The Secretary of the Treasury is tasked with promulgating rules which should provide more details and definitions.
FinCEN is required to protect the privacy of any beneficial ownership information it is provided and to determine that any local, Tribal, State or Federal law enforcement agency requesting the information has an existing investigatory basis for the request.
Penalty for Failure to Report.
The standard for imposing any penalty is a knowingly providing false information or willfully failing to provide the information. There is a civil penalty of not more than $10,000 and criminal penalty of not more than 3 years in prison. Both the civil and criminal penalties may be imposed. The penalty may be waived by the Secretary of the Treasury if it is determined that the violation was due to reasonable cause and was not due to willful neglect.
The Secretary of the Treasury is tasked with issuing regulations by December 31, 2022. The covered entities are subject to the reporting requirements 2 years after the final regulations are issued, unless they file a written certification citing a portion of the law that makes it exempt.
If you have any specific questions regarding the Corporate Transparency Act of 2019, please consider contacting David Robbins, Neil Meyer, James Njus, or your usual Meyer Njus Tanick attorney for assistance.