As financial regulations and anti-money laundering efforts continuously evolve, it is imperative that your business is aware of the acts in effect and the deadline for compliance. Starting on January 1, 2024, entities formed or registered to do business in the U.S. will be required to report beneficial ownership information.
The Corporate Transparency Act (CTA) stands as a significant milestone in the United States and the battle against illicit financial activities. Passed as part of the Anti-Money Laundering Act of 2020 (AML Act), the CTA introduces comprehensive beneficial ownership information reporting requirements for specific types of business entities.
Therefore, businesses should identify their beneficial owners.
Beneficial owners are individuals who directly or indirectly have “substantial control” or control or own at least 25% or more of the company’s ownership interests or who exercise substantial control over the entity.
Substantial control applies if any of the following applies:
- Senior officers of the business
- Can appoint or can remove senior officers of the business or a majority of the board.
- Directs or has a strong influence on company decisions
Do you need to report Infiniwiz, your Managed Service Provider (MSP), as the beneficial owner?
There is a commotion in the IT industry about the meaning of beneficial owners. Because the beneficial owner is defined as someone who has a strong influence on company decisions, one can conclude that the Infiniwiz IT consultant or Chief Information Officer (CIO) can be considered a beneficial owner. This is because they make recommendations to client management about technology, which can significantly impact the business and substantially influence a company's success. Therefore, MSPs can be seen as having a strong influence on a company's decisions.
Currently, there is no conclusive evidence that someone would need to report our virtual CIO as a beneficial owner, but there is also no evidence to the contrary. This is something we will keep monitoring, and as the year 2024 goes on, there may be additional guidelines or litigation happening that will clarify this issue. However, the definition is very vague, and it may or may not be a requirement.
What is the Corporate Transparency Act?
This Act aims to enhance transparency in corporate ownership. It also addresses a critical issue, which is the potential for individuals to exploit corporations, limited liability companies (LLCs), and similar entities in the United States for illegal purposes. These could include money laundering, terrorism financing, proliferation of weapons of mass destruction, and other forms of illegal activities.
Before the January 1, 2024, deadline, businesses need to take several important steps:
Who Must Comply
This act applies to corporations, limited liability companies (LLCs), companies that were created by a filing with the Secretary of State, and similar entities with under $5 million in revenue.
Who is Exempt?
- Businesses that are already regulated by the federal or state governments who already disclosed their beneficial ownership to authorities.
- Companies that employ over 20 full-time employees
- Gross revenues of over five million
- Physical office or presence in the United States
- Public accounting firms registered under PCAOB
What are the Penalties?
- Civil Penalties up to $500 a day
- Criminal fines up to $10,000 and/or;
- Two years in prison
What do You Need to Do to Stay Compliant?
Collect the necessary information about beneficial owners. This information typically includes their full legal names, dates of birth, current residential or business addresses, and unique identifying numbers (e.g., passport numbers or driver's license numbers).
Maintain Records: Make sure your business maintains up-to-date records of the beneficial ownership information. It's imperative to keep this information readily accessible for reporting purposes.
Designate a Reporting Representative: Ensure to appoint a representative within the business who will be responsible for submitting the beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN).
Understand Reporting Obligations: Familiarize yourself with the specific reporting requirements as well as advice that is provided by FinCEN. Also, be prepared to provide the required information when necessary.
Consult Legal Counsel: Given the complexities of compliance with the CTA, it's advisable that businesses should consult with legal counsel who are experienced in corporate and regulatory matters. This way, they can provide your company with guidance on how the CTA applies to your specific organization and help ensure that you're meeting all requirements.
Stay Informed: Stay updated on updated information on the regulations. Regulations will continue to evolve, so staying informed is imperative in remaining compliant.
Prepare for Client Requests: Be ready to respond to client requests for beneficial ownership information if your business is deemed to exert "substantial control" over its organization. Ensure that you understand the CTA's provisions regarding client requests and how to provide the required information.
Plan for Reporting: Be prepared to submit beneficial ownership information to FinCEN when the reporting requirements go into effect on January 1, 2024. Also, ensure that you understand the reporting process. Currently, there is no form that has been published yet. Entities formed or registered before January 1st, 2024, must file their initial report no later than January 1st, 2025.
Implement Compliance Measures: Put in place internal compliance measures to ensure that your business can meet its CTA obligations effectively and efficiently. This can include record-keeping procedures, staff training, and reporting protocols.
Overall, the Corporate Transparency Act represents a significant step toward improving transparency in corporate ownership in the United States. By requiring the reporting of beneficial ownership information and addressing the identified vulnerabilities, the CTA strengthens the nation's ability to combat money laundering, terrorism financing, and other illicit activities. Make sure that your company is prepared for the upcoming deadline.
For more information on the Anti-Money Laundering Act of 2020 (AML Act) and its implications, please visit https://www.fincen.gov/anti-money-laundering-act-2020