FinCEN crackdown on shell companies to begin in January

financial crime graphicBy Laurie L. Schweinle

On Jan. 1, Congress passed the National Defense Authorization Act for Fiscal Year 2021, which included the Corporate Transparency Act (CTA). CTA is a new provision intended to eliminate the use of shell companies commonly employed by criminal enterprises to launder money, finance terrorism, and otherwise engage in criminal acts.

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Laurie L. Schweinle is a litigation attorney who represents individuals and both privately-held and public companies in a wide range of civil litigation matters.

Effective Jan. 1, 2022, the CTA requires “reporting companies” to provide certain information to the U.S. Department of Treasury’s Financial Crimes Enforcement Network, or FinCEN. A “reporting company” is defined under the CTA as a corporation, limited liability company, or other similar entity formed pursuant to state or tribal law or formed pursuant to the law of a foreign country and registered to do business in the United States. The reporting companies must report “beneficial ownership” information to FinCEN. Subject to several exceptions, a “beneficial owner” is an individual natural person who directly or indirectly exercises substantial control over an entity or owns or controls 25% or more of the entity.

Beneficial ownership information includes the individual’s name, date of birth, current address, and a unique identification number, which may be a passport or driver’s license number. The information is required to be maintained by the secretary of the Treasury in a nonpublic database only accessible by authorized users, such as law enforcement with a warrant or financial institutions with appropriate permission.

The CTA is intended to target entities typically used as shell companies, such as small LLCs or those formed under the umbrella of a large company. The law excludes reporting requirements for other entities, such as publicly traded companies and many financial services institutions, because existing reporting requirements already provide for ownership transparency.

Entities formed prior to the effective date of the regulations will have two years to provide beneficial ownership information. Entities formed after the regulations go into effect must provide the required information at the time of formation or registration. Additionally, FinCEN must be updated within one year of any changes.

Because violators of the CTA will be subject to civil and criminal penalties, entities should monitor when these regulations go into effect and review them carefully to ensure compliance. Entities may also want to consider developing a strategy to ensure future compliance. Without regulations in place, there are still many unknowns, but the effects of the CTA are certain to impact both foreign and domestic businesses in a significant manner.

This article originally appeared in The Journal Record’s Gavel to Gavel column. View it HERE.


For more information about how the information in this article may impact your business, please call 405.606.4728 or email Laurie L. Schweinle.

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