Anti-money laundering laws exist to protect consumers, investors, and businesses from criminal or criminal activity.
Although such laws undoubtedly play an important role in maintaining them spending money there, they also require businesses to comply with certain laws and reporting practices.
Recently, a Corporate Transparency Act, which many people consider an anti-money laundering law, will come into force. This could affect over 32 million businesses, making it imperative for all businesses to follow the law and determine how it will affect them.
What is the Corporate Transparency Act?
Let’s start with the history. The Corporate Transparency Act was enacted in January 2021 with the aim of combating financial crimes. These crimes include money laundering, tax fraud, and other types of corporate malfeasance.
At the most basic level, it requires all eligible businesses to comply with certain reporting requirements. If your business qualifies, you must provide information about your company’s ownership.
This brings us to the next question. Which companies should be affected by this law?
Who must report under the Corporate Transparency Act?
All foreign and domestic reporting companies must register under the Corporate Transparency Act. Here’s what the group includes:
- Home reporting companies: Any US corporations, LLCs, and other business entities formed by filing documents with the Secretary of State or similar office.
- External reporting companies: Any corporation formed under the laws of another company is registered to do business in the US by filing documents with the Secretary of State or a similar office.
Which companies are exempt?
Although these categories seem to include most businesses, there are also businesses that are not allowed.
Instead, the Corporate Transparency Act lists all 23 business units that do not count as reporting companies, meaning they are not required to report under the act. It is worth noting that the act also empowers the Financial Crimes Enforcement Network to make additional exemptions if necessary, meaning the list could be extended to other business groups in the future.
The list of prohibited business groups includes:
- The largest operating company, which is defined as having 20 full-time employees, more than $5 million in annual revenue from the US, and the presence of US workers.
- Issuers registered with the SEC
- Banks, credit unions, and banking companies registered with the Financial Crimes Enforcement Network
- Commodity Exchange Act registered entities, investment firms, financial advisors, and private equity fund advisors
- Insurance companies or insurance producers that are licensed by the government
- Public resources
- Accounting firms
Note that most companies are not exemption from this general rule.
Reporting requirements under the Corporate Transparency Act
If your company is bound by the Corporate Transparency Act, it is good for you to know what you have to provide.
The reporting system will come into effect on January 1, 2024, and the time for businesses to start preparing is now.
The due date for the first report depends on when your company was incorporated. If your business was formed or registered before January 1, 2024, you do not have to file your first annual report; it is due on January 1, 2025. But if you create or register a business on or after January 1, 2024, your first report is due 30 calendar days later. create or register.
By now, you’re probably curious about what a reporting form looks like. No one knows for sure, as the form has not yet been made public. However, the Financial Crimes Enforcement Network has announced that the forms will be available to the public no later than January 1, 2024.
What is in the report?
While we don’t know what the form will look like, we do know what types of reports companies will be asked to provide. For example, companies must provide information, including their name, current address, and federal tax identification number.
Information about the beneficial owners must also be provided. What exactly is a beneficial owner? The law defines a beneficial owner as “any person who, directly or indirectly, has significant control over such reporting company or owns or controls at least 25 percent of the ownership interests of the company.”
Your report should provide information about each beneficial owner, including full legal name, date of birth, current address, and identification number (such as a passport or driver’s license).
Note that there are a few exceptions to the definition of “beneficial owner”, including minors and creditors representing the reporting company. Also, employees, except senior executives, are not included.
What are the penalties for failure to report?
Failure to comply with the Corporate Transparency Act may result in civil or criminal penalties. Each day of noncompliance carries a fine of up to $500 and the possibility of up to two years in prison. Naturally, you will want to take these deadlines very seriously.
It is expected that the Financial Crimes Enforcement Network will provide a number of advanced measures such as. anti money laundering software checking their data for non-compliance.
How companies can prepare to report under the Corporate Transparency Act
There are a number of useful things that businesses can do to prepare for their reporting process. Here are some tips:
Review your company plan
First, check if your company requires you to register under this law. Whether you have LLC in Texas (of good states to form an LLC) or corporation in New York, you will have disclosure requirements under the Corporate Transparency Act. Almost all business owners in the US, or those who own US LLCs or corporations, will be considered beneficial owners.
Create a directory of beneficial owners
To save time on future reports, you can create a complete directory of beneficial owners who are associated with your company, and write down basic contact information and important documents for each section. Consider implementing procedures to help you keep this information accurate and up-to-date.
Find out more about the changes to the law
Remember that this is a new law and is subject to change, modification, and expansion. Stay in the loop, maybe by asking a lawyer or doing a little research yourself.
Seek help from a business attorney
Considering some of the complexities of this law and the severity of some of the penalties, it may be wise to get help from a business lawyer. This is especially useful if you have specific questions and want to speak to an expert.
Make sure key decision makers are on board
Finally, remember that all decision makers in your organization need to understand the law, understand what it means, and know the internal rules to ensure compliance. Organizing a regular meeting on compliance with the Corporate Transparency Act is a must.
Ensuring compliance is important
The Corporate Transparency Act is not just governance for governance’s sake. The law was created as a response to dark and criminal organizations that use “shell companies” and other laws to hide money laundering or tax evasion. Ultimately, the law exists to promote financial fairness and provide transparency to consumers, investors, and business owners.
The law is honorable, but that does not mean that its requirements are not burdensome. Being familiar with the law and implementing procedures to ensure compliance can help your company stay ahead of the curve. Make this a priority for management in the coming year, and don’t forget to keep up to date with changes in the law.
Understand what it means to remain obedient with the help of a comprehensive guide Governance, Risk, and Compliance (GRC).