Corporate Transparency Act to enhance economic transparency in business

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The Corporate Transparency Act, also known as the CTA, is a new federal law that took effect Jan. 1, 2024. The CTA will require broad categories of domestic or foreign legal entities created or doing business in the U.S. to file reports on themselves, their beneficial owners and company applicants.

The law was created to enhance transparency in businesses. It is also designed to combat terrorism, money laundering, tax abuse and other financial crimes and seeks to fill in the beneficial ownership gap present in existing U.S. anti-money laundering laws.

According to David McCarville, partner at business and finance group Fennemore, “The Financial Crimes Enforcement Network (FinCEN) is the agency responsible for collecting information from reporting companies who are not exempt from the CTA. They have to provide beneficial ownership information for owners who have 25% or more ownership or have substantial control over about 30 million businesses in the U.S., affecting primarily small and medium-sized businesses.”

Beneficial ownership means there is 25% or more control over an LLC or corporation, or someone with substantial control who may be able to remove leadership from a company, according to McCarville.

This law will help police America’s economic system to fight economic fraud and financial wrongdoing.

“There have been instances where shell companies have been used to do these things and to basically use these shell companies for illicit financial activities, so FinCEN is trying to combat that through the CTA,” McCarville said.

It will be difficult for shell companies to work around these requirements, McCarville said. If companies fail to comply, FinCEN can use both criminal and civil penalties against someone.

David McCarville, Partner at Fennemore

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