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Corporate Transparency Act will require millions of businesses to disclose ownership details or face potential fines

By: Andy Medici, The Business Journals


Small-business owners have a new reporting requirement in 2024 — although most have until the end of the year to get it done.


The Corporate Transparency Act requires small businesses with fewer than 20 employees to report their ownership information to the Department of the Treasury’s Financial Crimes Enforcement Network as part of an effort to curb money laundering and illicit financial operations.


The reporting requirement began on Jan. 1, but existing businesses have until Jan. 1, 2025, for compliance. Businesses that form in 2024 have 90 days to fulfill the requirement. The online beneficial ownership information reporting tool is now open.


“The launch of the United States’ beneficial ownership registry marks a historic step forward to protect our economic and national security,” said Secretary of the Treasury Janet Yellen, in a statement.


“Corporate anonymity enables money laundering, drug trafficking, terrorism, and corruption. It harms American citizens and puts law-abiding small businesses at a disadvantage. Having a centralized database of beneficial ownership information will eliminate critical vulnerabilities in our financial system and allow us to tackle the scourge of illicit finance enabled by opaque corporate structures.”


The reporting requirement is not annual. Business owners only need to update their information if they have a change in ownership.


The information required includes:

  • Name, date of birth and address of each beneficial owner.

  • The identifying number and issuer from either a non-expired U.S. driver’s license, a non-expired U.S. passport or a non-expired identification document issued by a state (including a U.S. territory or possession), local government or Indian tribe. If none of those documents exists, a non-expired foreign passport can be used. An image of the document must also be submitted.

  • The company must also submit certain information about itself, such as its name and address. 

Exemptions to the rule extend to larger operating companies with 20 or more full-time employees and more than $5 million in revenue and a physical operating presence in the United States, along with companies that report to the SEC, banks, registered broker-dealers, insurance companies and essentially any other business that already reports ownership information to the government.


Opposition to the Corporate Transparency Act

The new reporting requirement has drawn some opposition. The National Small Business Association has filed a lawsuit in the U.S. District Court for the Northern District of Alabama, claiming the act infringes on state powers over the formation of entities and exceeds Congress’ power to regulate commerce. The association said a violation by a small-business owner, unintentional or not, could result in up to $10,000 in fines and two years in prison.


But those penalties are only for willful violations of the law, said Gary Kalman, U.S. director of Transparency International, an anti-corruption coalition that supports the reporting requirement and has filed an amicus brief in court in support of the legislation.


Kalman stressed that worries over the cost of compliance are overblown, as most small-business owners will have the required information at hand.


“The first thing that people need to understand is that this is not filling out a tax return or providing financial information or business justification. It’s literally saying who owns you and who owns the company,” Kalman said.


Kalman said while there are around 31 million small businesses in the United States, the vast majority (around 30 million) are owned by one or two people — and those owners are not confused about who owns the business. The businesses that have complex ownership structures also are likely to have the resources to report their ownership without problems, he said. 


What FinCEN wants

While detractors have said that small businesses are largely unaware of the new requirement, most service providers will be. That means when small businesses use their lawyer, accountant or other service provider, they likely will be told or reminded of the requirement. Kalman said small businesses that honestly forget to report their ownership information or update it are not a target for enforcement. 

“We need to stop spreading around the rhetoric that people are going to mistakenly get themselves in trouble,” Kalman said. "What FinCEN is looking for are criminal networks; national security risks. That's who they are looking for. They are not looking for the guy or the woman who owns a company who forgot to file some paper with the IRS.”


So who are the targets? The aim is to help catch anonymous companies that supporters say are used to launder money, fund terrorist networks and allow bad actors to do business where they are not allowed, Kalman said. While the ownership database is not public, it will be accessible by law-enforcement agents, giving them another tool to locate and crack down on criminal enterprises.

Before the law was passed, people could get companies registered with an agent without disclosing who ultimately owns the company. Now, someone has to put a name down as the owner, providing at least a lead or link for law enforcement to follow, Kalman said.


As for the litigation, Kalman said he is optimistic the law will survive the challenge.


“Any time anything is taken to court, you have to take it seriously; you can’t ignore it. The Treasury Department is vigorously defending it,” Kalman said. “At the end of the day, we think the law will withstand judicial scrutiny.”


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