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
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|
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?
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