Post Authored By: Kasim Carbide
Public companies, and the executives who run them, have always been under the public eye, with strict government regulations controlling and directing what can and cannot be done. The same has not been true of private companies, many of which have flown under the radar for years.
The recent enactment of the Corporate Transparency Act (“CTA”) hopes to change that by mandating the creation of a beneficial ownership registry for the United States Department of Treasury Financial Crimes Enforcement Network (“FinCEN”). While the CTA was enacted on January 1, 2021, it will not be enforced until January 1, 2022, when the CTA goes into effect.
Pointed directly in response to anonymous shell companies that operate under the radar, the CTA requires all private business owners (with 25% ownership stake or more) to disclose relevant identifying information with FinCEN, so that their beneficial ownership can be tracked. At its core, the CTA adds another layer of anti-money laundering and terrorist financing protections for the government, making it harder for criminals to disguise and profit from illicit funds and activity.
With the passing of this legislation, corporations and limited liability companies will now be subject directly to FinCEN, as the registry requires beneficial owners to provide personal information, and a driver’s license or passport number. Since the CTA broadly applies to corporations and limited liability companies, non-compliance is not an option as it carries a penalty of $500 for every day the violation continues, and potentially criminal fines up to $10,000 and imprisonment.
Since FinCEN will be required to store all beneficial ownership information in a secure database that cannot be accessed by the public, many critics point out the recent surge in cyberattacks may leave private companies vulnerable if a successful attack of the registry is carried out. Further, many posit that due to the sheer number of private companies that will be required to report to FinCEN, it is likely that a new bureaucratic agency will be created and developed to manage private company beneficial ownership.
While it is clear the CTA aims to curb private shell companies and shine a light on domestic money laundering, whether the CTA will be a welcome protection against money laundering, or an additional onerous burden for small companies to carry, remains to be seen.
About the Author:
Kasim Carbide concentrates his practice in Corporate Law, Bank Secrecy Act/Anti-Money Laundering Compliance, and counseling FinTech startups. When he is not reading or billing, Kasim enjoys cooking, watching the Office, and playing Catan with family and friends.