Thought Leadership - HORAN Wealth 12-2024

United States Corporate Transparency Act Update

The Corporate Transparency Act (CTA), enacted in 2021 as part of the Anti-Money-Laundering Act of 2020, aims to combat illicit financial activities such as money laundering, terrorism financing, and tax evasion. It establishes a national registry for beneficial ownership information, requiring certain U.S. businesses to disclose the individuals who own or control them to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.

The legislation represents a significant shift in the U.S. approach to financial transparency, aligning it with global standards promoted by organizations like the Financial Action Task Force (FATF). By unveiling the true owners of companies, the CTA intends to close loopholes that criminals exploit through anonymous shell companies, strengthen national security, and enhance global trust in the U.S. financial system.

The CTA mandates that corporations, limited liability companies (LLCs), and similar entities file reports with FinCEN containing information about their beneficial owners. A beneficial owner is generally defined as a person who owns at least 25% of a company or exercises substantial control over it. Required information includes the owner's full legal name, date of birth, current residential or business address, and a unique identification number from a government-issued document, such as a passport or driver’s license.

The act is particularly focused on small, privately held companies, as these are often used to create shell entities for financial crimes. However, the CTA exempts certain entities from reporting requirements, including publicly traded companies, large companies with significant operations and employees, and specific regulated entities like banks and investment firms, as they already report ownership data under other federal regulations.

The implementation of the CTA has been slow to progress, with final regulations published in September 2022 and compliance deadlines extended until January 2025.  Businesses are required to file initial reports and update their information within specified timeframes to avoid civil and criminal penalties. 

Several cases have questioned the constitutionality of the CTA, and on December 3, 2024, a Federal District Court in Texas held on a preliminary basis that the CTA and related regulations are an unconstitutional overstep by Congress.  That court issued a nationwide preliminary injunction; however it would be too much to assume that the CTA is dead.  This case will surely be appealed, and commentators will be busy discussing the merits of this decision over the coming weeks and months.

Those EACC members with companies or subsidiaries or even real estate LLCs organized in the United States should consult with experienced legal and accounting advisors to analyze compliance obligations that may exist.



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