Corporations, limited liability companies (LLCs) and certain other businesses have opaque business structures. Those not involved in the management of the company may not be able to identify those with an interest in the organization at first glance. LLCs, corporations and similar business types can, therefore, play a role in certain economic crimes with relative ease.
Money laundering, for example, might involve parties transferring funds between multiple different businesses. Without information connecting the companies, it is nearly impossible for regulatory officials to prevent money laundering.
Concerns about the lack of transparency in the business world prompted federal lawmakers to take action. They passed the Corporate Transparency Act, which will have implications for any business with indirect ownership records. What obligations does the Corporate Transparency Act impose on companies?
They have to file a special report
The Financial Crimes Enforcement Network (FinCEN) is a federal agency that helps track economic misconduct. FinCEN is the federal entity overseeing the implementation of the Corporate Transparency Act.
Existing businesses and entrepreneurs starting new companies must comply with new reporting requirements beginning in January 2024. An existing company will have one year to put together a report about those with a beneficial ownership interest in the company. New businesses will need to file a report during the startup process. They must submit the report to FinCEN to remain compliant with the new law.
That report will need to include the names and government identification numbers of anyone with a beneficial ownership interest in the company. Anyone who holds a 25% ownership interest or who exerts control over business operations may have a beneficial ownership interest in the organization. Businesses will also need to identify those who filed formation documents with the state and anyone who coached or guided the parties filing those documents.
The goal of such reporting is to clearly connect specific individuals to the organizations that they have helped establish or provided with financial support. Doing so can make it easier for the federal government to track money laundering and funds with ties to organized crime or terrorism. Businesses and individuals that fail to comply with reporting requirements may be at risk of enforcement efforts, which could include sizable fines.
Tracking changes to federal business laws may help owners and investors remain compliant with all relevant statutes. Seeking legal guidance proactively is, therefore, generally wise in this regard.