The Anti-Money Laundering Act of 2020 (AMLA) was enacted by the U.S. Congress on January 1, 2021 as part of the National Defense Authorization Act (NDAA), for the purpose of strengthening the detection and reporting of suspicious activities related to money laundering and terrorist financing, as well as securities fraud and other market manipulation. The AMLA includes a section called the Corporate Transparency Act (CTA), which became law in 2021, and gives authorization to the Department of the Treasury through the Financial Crimes Enforcement Network (FinCEN), to implement rules directed at fighting money laundering in the United States. As a result of the enactment of the CTA, effective January 1, 2024, all existing and new companies in the United States will be required to file FinCEN reports stating and disclosing their beneficial owners.
Under the CTA, a “Reporting Company” is required to file a FinCEN report with “personally identifiable information” about its beneficial owners the time of formation and annually thereafter. A “Reporting Company” is a corporation, LLC or any similar entity, created through the filing of the requisite documents with the Secretary of State of any State in the United States, or a foreign company authorized to do business in the United States. Since a foreign company is not a Reporting Company per se, the FinCEN report must include the full identity and contact information of the beneficial owner along with a valid official government issued identification document.
Before the application of the CTA, shareholders and/or beneficial owners are not part of the information on the public records in the United States, and in some States, not even the managers/directors are publicly disclosed. Shareholders are only listed on the federal tax return if the entity is required to file a federal tax return, which may not necessarily mean that the beneficial owner is ever disclosed, and if no tax return is ever filed, there will be no information about the shareholders or beneficial owners of these entities.
The CTA defines “Beneficial Owner” as any individual who- directly or indirectly- or through any contract, arrangement, understanding, relationship or otherwise i) exercises control over the entity; or ii) owns or controls at least 25% of the ownership interest in the entity. For Beneficial Owners, certain exceptions apply i) minor children; ii) nominees, intermediary, custodian or agent on behalf of other; iii) individual acting solely as employee and control arises solely from employment; iv) interest is through right of inheritance; and v) a creditor of the entity, unless meets the beneficial ownership rules.
Non-compliance with CTA’s reporting obligations results in penalties for willful reporting violations and unauthorized disclosure violations. For the first, a civil penalty of not more than US$500 per day, a fine of no more than US$10,000 or two (2) years in prison, or both; and for the later, a civil penalty of not more than US$500 per day, a fine of no more than US$250,000 or five (5) years in prison, or both. In the event of inaccurate or involuntary mistake, if corrected within ninety (90) days from submission, no penalties shall be applied.
There are certain unresolved issues related to lawyers’ responsibility with respect to the filing of FinCEN reports and the role played by lawyers in the filing of the FinCEN reports, even if they become aware of mistakes made by clients when filing the FinCEN reports, or if lawyers should now include a FinCEN reporting provision on corporate documents, but in any event starting on January 1, 2024 all people involved and/or related to corporate entities in the United States that fulfill the requirements, as stated above, will be required to file the FinCEN report as part of a enhanced campaign by the U.S. Government to obtain additional information about shareholders and beneficial owners of U.S. companies for purposes of having more transparency and avoiding money laundering and illegal activities through the use of legal entities and the banking system in the United States.
Starting on January 1, 2024, the FinCEN report can be filed at www.fincen.gov/boi For new entities created or registered on or after January 1, 2024, the report must be filed within 30 days of registration, and for entities created or registered before January 1, 2024, will have until January 1, 2025 to file the FinCEN report.
Article by Andres Bazo, Foreign Legal Consultant at Rasco Klock Perez & Nieto, P.L.