Photo credit: www.cbsnews.com
An appeals court has recently revived the enforcement of the Corporate Transparency Act (CTA), an anti-money laundering law requiring small business owners to register with the Financial Crimes Enforcement Network (FinCEN). Owners must comply by January 1, 2025, or risk facing fines reaching $10,000.
This enforcement action follows a suspension initiated on December 3 by a federal court in Texas, which issued a preliminary injunction against the regulations. However, the 5th U.S. Circuit Court of Appeals overturned that injunction, stating that the public interest in fighting financial crime and safeguarding national security necessitates the law’s enforcement.
Under the CTA, approximately 32.6 million small businesses are mandated to submit personal identification details to FinCEN, including a government-issued photo ID and their residential addresses. Following the court’s decision, many small business owners may need to rush to complete their registrations before the approaching deadline; businesses established in 2024 are allowed a 90-day registration period.
Some organizations advocating for civil liberties expressed concern over the ruling, viewing it as an instance of government overreach. The New Civil Liberties Alliance, a civil rights group, articulated this sentiment, arguing that such a statute exceeds Congress’s boundaries in regulating the activities of American citizens.
The U.S. Department of the Treasury has not yet publicly responded to requests for commentary regarding this matter.
Understanding the Corporate Transparency Act (CTA)
Passed in 2021, the CTA serves as an anti-money laundering framework aimed at diminishing the use of shell companies by criminals and organized crime, allowing them to disguise their identities and launder illicit funds. Treasury Secretary Janet Yellen highlighted its importance in combating financial misconduct during a 2022 statement.
While the CTA’s rules began to take effect in 2024, existing businesses have until January 1, 2025, to comply, while those newly established in 2024 must register within 90 days.
FinCEN operates as a bureau within the U.S. Department of the Treasury, focusing on investigating money laundering and other illegal financial practices.
Reporting Requirements Under the CTA
The CTA includes a Beneficial Ownership Information reporting requirement that obliges small businesses to supply certain information to FinCEN. As outlined by the U.S. Chamber of Commerce, the required data includes:
- Your company’s full legal name.
- The business address (not accepting P.O. boxes or registered agents).
- The state of registration.
- A taxpayer identification number and a valid identity document.
- Full legal names and birth dates of beneficial owners.
- Home addresses of beneficial owners.
- A copy of U.S. driver’s licenses or passports of beneficial owners.
How to Register Under the CTA
Small businesses can submit their reports through this link to FinCEN.
Consequences of Non-Registration
Failure to register under the CTA can lead to civil penalties of up to $591 per day. Moreover, businesses that do not comply could face criminal charges which may result in a two-year prison sentence and fines of up to $10,000, as noted by the U.S. Chamber of Commerce.
Exemptions to the CTA Requirement
Certain categories of businesses are exempt from the beneficial ownership reporting requirements. The U.S. Chamber of Commerce identifies 23 types of exempt entities, including many publicly traded companies and nonprofits, as well as some larger firms. Additionally, various banks and financial services are also excluded, along with many sole proprietorships. For a detailed list of exemptions and clarification, you can refer to this page.
Future Developments in the CTA Case
The next steps in this ongoing legal matter are uncertain. It is possible that organizations opposed to the regulation may seek intervention from the U.S. Supreme Court or request further examination from the 5th Circuit Court, according to reports from the National Law Review.
Source
www.cbsnews.com