The Corporate Transparency Act Reporting Requirements

Under the Corporate Transparency Act (CTA), certain entities are required to report beneficial ownership information. This regulation, implemented by the Financial Crimes Enforcement Network (FinCEN), is designed to prevent and combat illicit activities such as money laundering, terrorist financing, corruption, and tax fraud. This guide will help you understand the Beneficial Ownership Information Reporting Requirements and how they apply to you.

Who Needs to Report?

The CTA reporting requirements apply to corporations, limited liability companies, and other corporate structures formed within the United States. These entities play a crucial role in the U.S. economy, but their opaque structures can sometimes be exploited for illicit activities. The CTA aims to increase transparency and reduce these risks.

What Information is Required?

Entities are required to report two categories of individuals: the beneficial owners of the entity, and individuals who have filed an application with specified governmental authorities to create the entity or register it to do business. This information is crucial for law enforcement and regulatory bodies to prevent and investigate illicit activities.

Full legal name: The complete legal name of the beneficial owner as per official documents.
Date of birth: The date of birth of the beneficial owner, which helps in identifying the individual.
Current residential or business street address: The current address where the beneficial owner resides or conducts business. This does not include P.O. Box addresses.
Identification number: A unique identification number from an acceptable identification document such as a passport or driver’s license, or a FinCEN identifier.

For non-U.S. citizens who are beneficial owners, they will need to provide the number and country of issuance of their passport or a description of a similar identification document.

When is the Report Due?

The CTA reporting requirements will be effective from January 1, 2024. Entities will need to ensure they have the necessary information and processes in place to comply with these requirements from this date.

Why is this Important?

The CTA reporting requirements are designed to increase transparency and strengthen the U.S. anti-money laundering/countering the financing of terrorism (AML/CFT) framework. By requiring entities to disclose beneficial ownership information, the CTA aims to prevent illicit actors from using corporate structures to hide their activities and illicit gains. This not only protects the U.S. economy but also promotes a fairer business environment for all.

Privacy Concerns and Security Implications

While the CTA aims to increase transparency and combat illicit activities, it also raises certain privacy concerns. The information collected will be stored in a central federal database, which could potentially be targeted by hackers. The government has assured that stringent security measures will be in place to protect this sensitive information. However, past incidents of federal databases being hacked highlight the potential risks involved.

It’s important to note that the information required under the CTA is limited to what’s necessary for law enforcement and regulatory bodies to prevent and investigate illicit activities. This includes the identities of the beneficial owners and individuals who have filed an application to create or register the entity. The government has emphasized that the collection and storage of this information will be done in a manner that respects privacy rights and ensures data security.

31 U.S.C. Section 5336(b)(2) of the Corporate Transparency Act.

REQUIRED INFORMATION.—

(A) IN GENERAL.—In accordance with regulations prescribed by the Secretary of the Treasury, a report delivered under paragraph (1) shall, except as provided in subparagraph (B), identify each beneficial owner of the applicable reporting company and each applicant with respect to that reporting company by—

(i) full legal name;

(ii) date of birth;

(iii) current, as of the date on which the report is delivered, residential or business street address; and

(iv)

(I) unique identifying number from an acceptable identification document; or

(II) FinCEN identifier in accordance with requirements in paragraph (3).

(B) REPORTING REQUIREMENT FOR EXEMPT ENTITIES HAVING AN OWNERSHIP INTEREST.—If an exempt entity described in subsection (a)(11)(B) has or will have a direct or indirect ownership interest in a reporting company, the reporting company or the applicant—

(i) shall, with respect to the exempt entity, only list the name of the exempt entity; and

(ii) shall not be required to report the information with respect to the exempt entity otherwise required under subparagraph (A).