The US government recently passed a new law aimed at reducing dark money activities such as the financing of terrorist organizations and money laundering. This legislation, known as the Corporate Transparency Act (“CTA”) will be administered by the Financial Crimes Enforcement Network, otherwise known to most as FinCEN. It takes effect January 1, 2024. This law requires action on the part of a large swath of businesses and cannot be ignored.

The CTA essentially requires all corporations, limited liability companies, partnerships and legal entities registered to do business in the United States to disclose certain information regarding those persons that have beneficial ownership – those who own, direct, manage or otherwise control those entities. There are some exemptions (including domestically located companies employing more than 20 full time employees and with more than $5 million in domestic gross revenue the prior year, insurance companies, tax exempt organizations and publicly held companies which report to the SEC) but the vast majority of companies will need to comply by providing the required identifying information of their beneficial owners.

Beneficial ownership under the CTA is any individual that directly or indirectly either has substantial control over the reporting company or owns or controls 25% or more of the reporting company’s interests. Substantial control is defined as having any one of the following roles or powers:

• Serving as a senior officer of the company;
• Having authority over senior officers of the company or over a majority of its board of directors;
• Having substantial influence over the major decisions of the company; and/or
• Having any other form of substantial control and influence over the company.

Important note for our real estate investor clients: Virtually all single purpose entities (SPE) formed for the purpose of borrowing money to finance the purchase of commercial real estate fall into the category of reporting companies under the CTA.

The penalties for failure to comply with the CTA can be steep and severe – fines of up to $500 per day may be assessed, as well as potential criminal penalties including fines of up to $10,000 and jail sentences of up to two years.

Lastly, and of equal importance, you should beware the opportunistic scams that have followed the passage of the CTA. As noted on the federal government’s website (fincen.gov/boi), scammers are sending out fake notices to companies in attempts to fraudulently acquire owners’ personal information and, to a lesser extent, bilk them of filing fees.

As with most laws, there are many nuances to the new CTA. And, as always, you can turn to the corporate team at Erwin Law to help you understand the ways in which it may affect you and your business. You can reach us via email at info@erwinlawfirm.com, or by calling 773-525-0153.