Melanie DamianSoon, the Federal Regulators will have another tool for identifying the people behind fraudulent activities.  The Corporate Transparency Act, enacted on January 1, 2021, requires corporations and LLCS to disclose the name, date of birth, current address, and a unique identifying number from pre-approved forms of identification (such as a passport or driver’s license) of all-natural persons with at least a 25% ownership stake.  Companies must also update this information if a change in ownership occurs.

The purpose? To prevent wrongdoers from exploiting United States corporations LLCs for criminal gain and assist law enforcement in detecting, preventing, and punishing terrorism, money laundering, and other misconduct involving United States corporations and LLCS.

The information collected as part of the CTA will be maintained in a secure, private database available only to authorized government authorities such as national security and intelligence agencies, law enforcement, and financial institutions for confirmation of beneficial ownership information. Companies that do not comply are subject to civil and criminal penalties, including fines of up to $10,000, and up to two years in prison for willful violations. Because the Act also includes increased information sharing between law enforcement and financial institutions, regulators should see improvements in not only identifying fraud, but also curbing it, making it easier for them to bring stolen assets into custody and subject to a Receivership Order.

In addition, fraudsters would no longer be able to use anonymous corporate structures and shell companies to move and hide illegally obtained funds. The Act will also make locating companies connected to fraudulent schemes and those who own them easier.

Exemptions to the law would include certain entities that file reports with other agencies, such as publicly traded firms who are required to file with the Securities and Exchange Commission, or that are lower risk, such as larger companies with at least 20 full-time employees that reported at least $5 million of gross receipts on previously filed Federal income tax returns.

Companies subject to the CTA will be required to begin reporting to FinCEN after the  Secretary of the Treasury adopts the regulations, which is required to be this year. Companies formed prior to the effective date will have two years  after the Secretary of Treasury adopts the regulation to submit the required reports to FinCEN.

To read the legislation, click here.