The Corporate Transparency Act (CTA), a significant part of the Anti-Money Laundering Act of 2020, took effect on January 1, 2024. The CTA aims to combat money laundering, terrorist financing, and other financial crimes by promoting corporate transparency. It requires certain entities—referred to as "reporting companies"—to file a Beneficial Ownership Information Report (BOIR) with FinCEN, disclosing key information about the entity and its beneficial owners.

Who Must Comply with the CTA?

A "reporting company" under the CTA includes:

1. Domestic Entities: Corporations, LLCs, or similar entities created by filing formation documents with a U.S. Secretary of State.
2. Foreign Entities: Companies registered to do business in the U.S. with a Secretary of State or similar authority.

Exemptions:

The CTA provides 23 exemptions, including:

• Public companies registered under the Securities Exchange Act.
• Investment companies registered with the SEC.
• Large operating companies meeting specific employee, revenue, and U.S. presence thresholds.
• Certain tax-exempt organizations and subsidiaries of exempt entities.

Entities qualifying for an exemption are not required to file but must comply if they lose their exempt status.

Key Deadlines for Filing BOIRs

Reporting Company Formation DateBOIR Filing DeadlineFormed before January 1, 2024January 1, 2025Formed between January 1, 2024, and December 31, 202490 days from formationFormed on or after January 1, 202530 days from formation

Required Information

Reporting companies must disclose:

1. Beneficial Owner Information:
   • Full legal name
   • Date of birth
   • Residential address
   • Government-issued ID (with image)
2. Company Information:
   • Legal name and any trade names (DBAs)
   • Principal U.S. business address
   • State of formation/registration
   • Taxpayer Identification Number (TIN)
3. Company Applicants (for entities formed after January 1, 2024):
   • Individuals who filed or directed the filing of the formation documents.

Compliance Challenges and Penalties

Failing to comply with the CTA can result in civil penalties of up to $591 per day (adjusted for inflation) and criminal penalties including imprisonment for up to two years and fines up to $10,000.

Key violations include:

• Willfully failing to file or update a BOIR.
• Providing false or misleading information.

Litigation and State-Specific Frameworks

The CTA has faced legal challenges on constitutional grounds, with differing outcomes across jurisdictions. Despite ongoing litigation, the CTA remains enforceable. Additionally, states like New York are enacting their own corporate transparency laws, such as the New York LLC Transparency Act, which takes effect in 2026.

Relief for Natural Disaster Victims

FinCEN has extended BOIR filing deadlines for companies affected by recent natural disasters. Companies in disaster-designated areas should consult FinCEN for specific relief measures.

Conclusion

The CTA represents a new era of corporate transparency aimed at combating financial crimes. Companies must carefully determine their reporting obligations, ensure timely compliance, and implement robust processes for collecting and safeguarding sensitive information.