What is the Corporate Transparency Act, and What Does it Require?

The Corporate Transparency Act (the “CTA”) is a U.S. federal law that was enacted by Congress on January 1, 2021 as part of the National Defense Authorization Act and is formally an amendment to the Bank Secrecy Act.

The CTA was enacted in an effort by the U.S. government to combat money laundering, sanctions evasion, terrorist financing, corruption, tax fraud and other illicit activity. Prior to the enactment of the CTA, the government, for the most part, had no broad capability to identify the true owners behind legal entities formed in the U.S., unlike most other countries in the world with developed economies. In some ways, therefore, the passing of the CTA has been viewed as the U.S. “catching up” with what other countries are already doing in this area.

The CTA, however, is not without controversy. It raises questions and issues of personal privacy, and its effectiveness at accomplishing its goals remains to be seen. Moreover, some argue that it places an undue burden on businesses, as its requirements are viewed by many as onerous. Our goal at Perfect Form is to minimize the time and effort you are required to spend thinking about the CTA.

The Financial Crimes Enforcement Network (“FinCEN”), a bureau of the United States Department of the Treasury established in 1990 with the primary goal of combatting financial crimes, was tasked with implementing the requirements of the CTA. FinCEN will do this through the issuance of various rules covering the requirements of the CTA. On September 29, 2022, FinCEN issued the first final rule under the CTA, known as the “Beneficial Ownership Reporting Rule.” This rule requires entities formed (or in the case of foreign entities, registered to do business in the U.S.) prior to January 1, 2024 that are not otherwise exempt from the filing requirements of the CTA (known as “Reporting Companies”) to file with FinCEN a Beneficial Ownership Information Report (“BOIR”) prior to January 1, 2025 that discloses the entity’s “Beneficial Owners.” The filing requirements of entities formed on or after January 1, 2024 are the same except that (i) these entities must also disclose their “Company Applicants” in the filing, and (ii) if formed in 2024, these entities have just 90 days to file their BOIR with FinCEN, and for 2025 and beyond, such 90-day period is reduced to 30 days.