Did you know that the National Defense Authorization Law for the fiscal year 2021 was enacted on January 1st? And within this bill is the Corporate Transparency Act, which creates a registry of beneficial ownership within the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN), in a way to require certain corporations and limited liability companies to report information about their “beneficial owners” to FinCEN.
The aim of the change is to prevent the use of American companies for criminal ends and to give support law enforcement in detecting and preventing illigal activities such as money laundering and financing terrorism. In this way, companies will be required to report who their partners are to the government.
What are companies required to disclose?
In accordance with the CTA, a declaration of beneficial ownership must be presented by corporations, limited liability companies (LLCs) and other similar entities which:
- Were created by presenting a document to a secretary of state or similar authority, in accordance with the law of any state or indigenous tribe.
- Were founded under the law of a foreign country and registered to do business in the United States by completing a document with a secretary of state or similar authority under the laws of an indigenous state or tribe.
It is worth mentioning that there are exceptions that were not included in the mandatory submission of the declaration. Therefore, the following companies will not be included:
- Employ more than 20 full time employees in the United States
- Have less than $5 million in annual revenue
- Have an operational presence in a physical office in the United States
There are also other types of entities that will be exempt from CTA reporting requirements:
- Issuers of securities registered under the Securities Exchange Act of 1934.
- Churches, charities, non-profit entities and any other entity that qualifies for the status of tax exemption under sections 501 (a), 527 ir 4947 (a)(1) of the Internal Tax Revenue Tax Code
- Other companies that have accountability obligations to government entities such as insurance companies, banks, federal or state credit unions, investment companies under the Investment Companies Act of 1940, registered public accounting firms and public services are also out.
It is important to note that, despite these exceptions, the final beneficial owners of all entities that involve tax transfers (certain trusts, LLCs, among others) can already be determined by the Federal Revenue Service and other state tax authorities thanks to the K-1s form, which provides information on tax returns for these types of businesses.
What should be reported?
In the statement, the company must provide data related to each beneficial owner, which according to the CTA, is “any individual who, directly or indirectly: (i) exercises substantial control over the entity; or (ii) owns or controls more than 25% of the entity’s ownership interests.”
Not included in the statement are: underage children, individuals acting as nominees, intermediaries, custodian or agent on behalf of another individual; individuals acting only as an employee of a reporting company; individuals whose sole interest in the company was through inheritance; the company’s creditor.
The statement must include the following information for each beneficiary:
- Full Name
- Current home or business address
- Date of birth
- Identification number (such as a driver’s license or passport number)
What is the deadline for delivery?
The forecast is that the CTA will take effect at the end of this year, since there is a one-year window for the Treasury Department to carry out the process of issuing the regulations. From the moment the law becomes active, the deadline for submitting the beneficial owner statement must be immediate for entities that have just been formed, and two years from the effective date for entities that already exist.
In the event of a change in beneficial ownership, the company must update the information provided to FinCEN within one year.
What are the terms of confidentiality of data provided by companies?
All the information that will be provided to FinCEN will be confidential, that is, will not be available to the public. This data will only be made available to federal and state law enforcement agencies in some cases and only for law enforcement, national security or intelligence purposes.
The Treasury Department will also be authorized to access this information. The information can also be solicited by foreign police.
Financial institutions, with the consent of the declaring companies, will also have access to the database for the clients’ due diligence requirements imposed by federal and state law (for example, Bank Secrecy Act, USA PATRIOT Act, etc…).
What are the penalties involved?
If beneficial owner data is disclosed illegally, the person responsible can receive a fine of up to US $ 500 per day and up to US $ 250,000 in total, in addition to being subject to criminal punishment with 10 years in prison.
Any party who intentionally fails to meet the CTA’s reporting requirements may be liable for fines of around US $ 500 for each day that there is an intentional failure to report beneficial ownership information, and those parties may be subject to fines. up to US $ 10,000 or imprisonment of up to two years.
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