Who is exempt from the Corporate Transparency Act?

The final rule and the CTA by FinCEN exempt 23 types of entities from the definition of a reporting company.

When was the Corporate Transparency Act passed?

The Corporate Transparency Act or CTA was enacted on January 1st, 2021.

AML

08 min Read

September 17, 2023

What is the Corporate Transparency Act (CTA)?

In 2022, FinCEN introduced regulations to safeguard the beneficial ownership information (BOI) reported under the Corporate Transparency Act (CTA). These regulations establish stringent security protocols to protect sensitive personal data. They outline how authorized recipients can access BOI and implement oversight mechanisms for different recipient categories. These measures are aimed at helping law enforcement and national security agencies combat money laundering, terrorist financing, and tax fraud, and safeguarding our national security. Additionally, FinCEN has proposed rules on when and how reporting companies can use FinCEN identifiers for BOI reporting. This article is an overview of the Corporate Transparency Act and its role in Anti-Money Laundering.

Misbah Tayib

Compliance Journalist

Corporate Transparency Act (CTA)

The Corporate Transparency Act (CTA) is a piece of legislation enacted as part of the Anti-Money Laundering Act of 2020 (AML Act), which was included in the National Defense Authorization Act for Fiscal Year 2021 (NDAA). It inculcates the following main postulates:

1. The Role of CTA in AML

The primary role of CTA is to enhance corporate transparency by requiring certain entities, such as corporations and limited liability companies (LLCs) to report beneficial ownership information (BOI) to the FinCEN. Beneficial ownership information includes details about individuals who own or control the said entities and is aimed to reveal the true owners behind businesses.

By collecting this information, the CTA plays an assistive role in mitigating financial crime, including money laundering, terrorist financing, and tax fraud. It provides law enforcement and national security agencies with valuable tools to track and combat illicit activities such as money laundering, as well as to protect national security interests by uncovering hidden ownership structures that may be involved in criminal or illicit activities.

2. BOI Reporting Requirements

Reporting Companies
Type	Details
Domestic Companies	A corporation, LLC (limited liability company), or any other entity that is created by filing with the state or tribal secretary of the state or similar office under state of tribal law.
Foreign Companies	A corporation, LLC, or any other entity created under foreign country law and is registered to conduct business in any state or tribal jurisdiction. Also, it requires filing with the secretary of the state of a similar office.
Exempted Companies	Under the CTA, 23 types of companies are exempt from the definition of reporting companies.
Other Entities	Other entities that are subjected to specific exemptions under the definition of reporting companies include: LLP (limited liability partnerships) LLLP (limited liability limited partnerships) Business Trusts Most limited partnerships Generally, these entities are created by filing under the state secretary of a similar office.

3. Beneficial Owners

Under the rule, a beneficial owner is defined as an individual or a company that has:

Significant control and authority over-reporting company
At least 25% of the company’s share in the reporting company

In keeping with the CTA, if an individual or a company falls under any of these points is a beneficial owner. For example, the president, CEO, CFO, and COO of the company have substantial control over the company yet they might not have 25% of the share. Still, they’ll be considered beneficial owners and vice versa.

Also read: Ultimate Beneficial Owner (UBO) in KYC

4. Company Applicants

A company applicant under the rule can only be these two persons
Person 1	An individual who directly files the document that creates the entity In the case of a foreign reporting company, the document that first registers the entity to do business in the United States.
Person 2	An individual who is primarily responsible for directing or controlling the filing of the relevant document by another.

5. Important Dates

The rule will be effective from 1st January 2024.
The reporting companies that are registered or created before 1st January 2024 will have one year to file reports until 1st January 2025.
The reporting companies created or registered after 1st January 2024 will have 30 days after receiving notice to file reports.
Reporting companies will have 30 days to report changes in information in their previously filed reports.
They must correct the inaccurate information in previously filed reports within 30 days of the company becoming aware of the inaccurate information or has the reason.

How will Corporate Transparency Act (CTA) Enhance Regulatory Compliance?

The BOI reporting rule will ensure the implementation of CTA where FinCEN has the following plans to tighten the grip of law enforcement over financial crimes:

Revise the FinCEN’s Customer Due Diligence (CDD) rule.

In accordance with the CTA requirements of strict security and confidentiality, FinCEN will employ information systems security technology called BOSS (Beneficial Ownership Secure System).

In accordance with the requirements of the Paperwork Reduction Act, FinCEN will release the reporting forms that individuals must utilize to fulfill their responsibilities under the BOI reporting rule for public review in the Federal Register. These forms will be made available by FinCEN well before the effective date.

FinCEN will also develop compliance guidance to help the reporting companies in compliance with the BOI rule and facilitate the implementation of CTA.

Furthermore, the implementation of the final rule under CTA will ensure more stringent AML regulations in the corporate business world.

How can Entities Stay Compliant with CTA?

A resourceful Guide has the power of knowledge and expertise to equip businesses to eliminate the inconvenience of choosing the right KYC vendor. KYC technology buying consultancy solution is a tool to streamline business processes, especially in the case of reporting companies. Such consultants keep a watchful eye on the ever-changing regulatory landscape and rapidly adapt to the newer regulations where they steer businesses toward compliance.

Misbah Tayib

Misbah Tayib is a compliance journalist and freelance writer with almost 6-year long experience of covering developments in blockchain sector, crypto industry, AML compliance, privacy regulations, and relevant political advancements.