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  • Writer's pictureRic Armstrong

What is the Corporate Transparency Act?

Congress enacted the Corporate Transparency Act on January 1st, 2021 as part of the Anti-Money Laundering Act of 2020.  The goal of the CTA is to provide law enforcement with beneficial ownership information for the purpose of detecting, preventing and punishing terrorism, money laundering, and other misconduct through business entities. 

As of Jan. 1, 2024, many businesses will be required to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN) to identify those who directly or indirectly own or control the company.

The Act places a significant burden on small businesses required to collect beneficial ownership information. More clarity and precision with respect to the requirements is required to reduce the burden on reporting companies and applicants as well as increase compliance and the value of the information reported.

The Corporate Transparency Act represents the culmination of more than a decade of congressional efforts to implement beneficial ownership reporting for business entities. When fully implemented, it will create a database of beneficial ownership information within FinCEN. The stated purpose of the database is to provide the resources to “crack down on anonymous shell companies, which have long been the vehicle of choice for money launderers, terrorists, and criminals.”   

Prior to the implementation of the Corporate Transparency Act, the burden of collecting beneficial ownership information fell on financial institutions, which are required to identify and verify beneficial owners through the Bank Secrecy Act’s customer due diligence requirements. The Corporate Transparency Act will shift the collection burden from financial institutions to the reporting companies and will impose stringent penalties for willful non-compliance and unauthorized disclosures.

Future blog posts will address topics such as “Who Must Comply with the Act” as well as the Act’s “Impact on Texas Businesses."

If you have any questions regarding the Act and its impact on your firm, don’t hesitate to contact us.

Source: American Bar Association


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