Reported by Kelly Phillips Erb

Americans like to think of ourselves as open for business—suggesting transparency—other countries aren’t so sure. A 2014 Organization for Economic Cooperation and Development—or OECD—report noted that the Foreign Action Task Force, or FATF, scored the U.S. as “non-compliant” when focused on the “transparency of legal persons and arrangements.” And the Tax Justice Network ranks the U.S. first in their Financial Secrecy Index (first means the most secretive— the index is a ranking of jurisdictions the organization finds “most complicit in helping individuals to hide their finances from the rule of law”). According to global watchdogs, that matters because countries with higher transparency standards often tout lower rates of criminal activities like money laundering, tax fraud, and terrorism financing.

The global perception tends to be that, in the U.S., we demand a certain level of transparency when dealing with foreign banks and companies, but we don’t always have that same information to make available to other jurisdictions. That may be about to change.

Corporate Transparency Act

In 2021, Congress passed the Corporate Transparency Act—or CTA—as part of the National Defense Authorization Act for Fiscal Year 2021 (if you see references to 2020, it’s because the law was introduced in 2020 as part of the Anti-Money Laundering Act, but was eventually rolled into the CTA and passed in 2021).

The law cites five key goals:

• set a clear, Federal standard for incorporation practices;
• protect vital United States national security interests;
• protect interstate and foreign commerce;
• better enable critical national security, intelligence, and law enforcement efforts to counter money laundering, the financing of terrorism, and other illicit activity; and
• bring the United States into compliance with international anti-money laundering and countering the financing of terrorism standards.

The center of the legislation is a mandate for reporting companies to file reports that identify a company’s beneficial owners with FinCEN, the Financial Crimes Enforcement Network. You may have had experience filing reports with FinCEN before—among other things, the Reports of Foreign Bank and Financial Accounts, sometimes called FBARs, are filed annually with the agency.

For purposes of the CTA, reporting companies can be domestic companies created under the laws of a state or Indian tribe, or entities formed under the law of a foreign country registered to do business in any state or tribal jurisdiction. This can include limited partnerships, limited liability partnerships (LLPs), business trusts, LLCs (including SMLLCs), and corporations—typically, any entity you would register with the state.

Notably, sole proprietors who are not SMLLCs are not considered a reporting company for this purpose—the same is true for general partnerships. And while trusts and estates professionals feared overreach, their fears were unfounded, as the regulations made clear that the law does not apply to revocable living trusts and irrevocable trusts.

Several other exceptions also apply, including issuers of securities, banks, and credit unions. Non-profit companies are also exempt.

Timing

So, why are we talking about this now? Reporting companies that are in existence on Jan. 1, 2024, have to file an initial report with FinCEN within one year. Those created after Jan. 1, 2024, have 30 days after receiving notice of their creation or registration to report. However, in September, FinCEN proposed extending the initial filing deadline to 90 days in 2024 (the 30-day rule would apply in 2025).

Read full report: https://www.forbes.com/sites/kellyphillipserb/2023/11/14/as-2024-approaches-are-you-ready-for-the-corporate-transparency-act/amp/