Money Laundering

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The Corporate Transparency Act (CTA) was passed by the U.S. Congress as part of the overall 2021 National Defense Authorization Act under the scope of the Anti-Money Laundering Act of 2020 (AMLA). The purpose of the CTA is to combat money laundering and other financial crimes by banning the anonymous shell companies that criminals can use to move illicit financing, but required compliance with the CTA's reporting provisions will not start until January 2022.

Defining Beneficial Owner

Under the CTA, a beneficial owner is defined as an individual who directly or indirectly exercises "substantial control" over the entity or owns/controls at least 25% of the "ownership interests" of the entity. However, there are five key exceptions to this rule:

  • Minor children, if information is reported for their parent or guardian
  • An individual with control derived solely because of their employment status
  • An individual acting as an agent on behalf of another person
  • Anyone whose only interest is through a right of inheritance
  • A creditor of the entity

Reporting Requirements

The CTA requires U.S. companies to complete a report for the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury Department, that provides the following information about a beneficial owner:

  • Full legal name
  • Birthdate
  • Current address
  • Unique identification number (such as from a driver's license or a passport)

The report must be updated on a yearly basis. The reporting requirements are intentionally broad and apply to existing corporations and LLCs as well as newly formed entities.

Information reported under the CTA is collected in a database accessed by national security agencies, law enforcement, financial institutions, and FinCEN.

Avoiding Potential Penalties

It is vital that you work with an experienced international business planning attorney to understand what reporting obligations you have under the CTA. Violations of this new law will carry civil penalties of up to $500 per day, criminal fines up to $10,000, and imprisonment for up to two years.

MEG International Counsel will work with you to evaluate your compliance processes and verify that the required information is being reported to FinCEN in a timely fashion. Contact us to learn more.

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