If you have been sequestered away, biding time awaiting the Covid-19 Vaccine, perhaps you missed a rather nuanced aspect to National Defense Authorization Act (NDAA), namely the Corporate Transparency Act of 2019 (CTA). The CTA added to the NDAA, applies to both new and existing entities and would make it more difficult to anonymously launder money or evade taxes. The CTA requires newly formed and certain existing entities to file reports disclosing ownership of the entity.
The expressed purpose of the bill is to: “[t]o ensure that persons who form corporations or limited liability companies in the United States disclose the beneficial owners of those corporations or limited liability companies in order to prevent wrongdoers from exploiting United States corporations and limited liability companies for criminal gain; to assist law enforcement in detecting, preventing and punishing terrorism, money laundering and other misconduct involving United States corporations and limited liability companies; and for other purposes.”
The CTA directs the Financial Crimes Enforcement Network (FinCEN) to maintain a national registry of beneficial ownership information. The Treasury Department’s FinCEN will provide the data to law enforcement agencies and banks upon request. In some circumstances, allied nations will also be able to request ownership details. Banks may rely on the reports when complying with customer due diligence requirements. The general public will not have access to the registry.
Who must file?
Certain new and existing small corporations and limited liability companies must disclose information about their beneficial owners by filing with FinCEN. A beneficial owner is an individual who (1) exercises substantial control over a corporation or limited liability company, (2) owns 25% or more of the interest in a corporation or limited liability company, or (3) receives substantial economic benefits from the assets of a corporation or limited liability company.
The CTA exempts many categories of companies from the reporting requirement, specifically, companies that employ more than 20 people, filed a tax return reporting gross receipts in excess of $5 million, and have a physical presence in the United States; and any entity owned by an entity otherwise exempt. Also, highly regulated companies including financial institutions and public companies, or SEC reporting entities.
Robert K. Feldman
Attorney at Law