The United States' beneficial ownership reporting environment underwent a significant change with the passage of the Corporate Transparency Act. CTA was a component of the Anti-Money Laundering Act of 2020. Under the new compliance regime, many entities must now submit Beneficial Ownership Information (BOI) to FinCEN, starting from January 1, 2024. Increased transparency, less abuse of anonymous shell companies, and assistance with AML investigations are the goals of this endeavour.

What Is the Purpose of the Corporate Transparency Act (CTA)?

To ensure greater accountability and transparency in business practices, the CTA aims to: 

• Dismantle anonymous companies that are frequently used for tax evasion, money laundering, and sanctions evasion.
• Assist law enforcement and national security initiatives by giving authorities the resources and data they need to better monitor illegal financial activity and fight financial crimes. 
• Bring the United States into compliance with FATF Recommendation 24 on beneficial ownership transparency, which encourages international norms for determining and recording the real owners of businesses and other legal entities. 

To help financial institutions better detect, track, and reduce the risks connected to money laundering and terrorist financing, strengthen risk-based AML frameworks.

What Is Beneficial Ownership Information (BOI)?

The identities of people who fit particular requirements within a reporting company are referred to as Beneficial Ownership Information, or BOI. These people either,

• Possess at least 25% of the equity, shares, or ownership interest in a reporting company, or they,
• Exert considerable control, which could involve holding a key management position within the organisation, making crucial decisions, or exerting a great deal of influence over operations. 

To guarantee openness and regulatory compliance, every BOI report needs to contain comprehensive information. 

• The first item is a government-issued ID number from a passport, driver's license, or other authorised identification document; 
• The second item is the person's legal name, birthdate, and current residential or business address; 
• And lastly, a clear photocopy or image of the provided ID for verification purposes.

Who Must Report Under the Corporate Transparency Act?

The majority of private entities established or registered to conduct business in the United States are covered by the CTA like limited partnerships, corporations, LLCs, and foreign companies registered in the country.

Under the new rules, these are all referred to as "reporting companies." In order to adhere to transparency laws, these entities must submit comprehensive ownership and control information. 

FinCEN estimates that in 2024 alone, these requirements will impact about 32 million entities.

Who Is Exempt from CTA Reporting?

Twenty-three categories of entities are exempt from reporting BOI to FinCEN under the CTA. These exemptions are typically predicated on the idea that these organisations are already adequately regulated or disclosed to the public.

According to 31 CFR § 1010.380(c)(2), the complete list of 23 CTA exemptions is:

Important Notes on Exemptions:

Self-determination, since organisations have to decide for themselves if they are exempt, since exemptions are not pre-approved by FinCEN.

Documentation, since businesses need to keep records attesting to their exemption.

Updates, since an entity may lose its exemption and be required to submit a BOI report within 30 days if its status changes. One example is a previously exempt entity becoming active.

When and How Must BOI Be Reported to FinCEN?

Companies and organisations that are required to report to the BOI must make sure that FinCEN guidelines are followed on time. To avoid fines and preserve regulatory compliance, it is crucial to comprehend the appropriate reporting deadlines and procedures. FinCEN's BOI e-filing system is required for all electronic submissions.

How Does CTA Reporting Support AML Compliance?

The CTA strengthens AML efforts by: 

• Firstly, filling in ownership transparency gaps that are frequently used by criminals to hide illegal activities like money laundering or tax evasion. 
• Another item on our list is assisting banks with more efficient customer identity verification during Enhanced Due Diligence (EDD) and Customer Due Diligence (CDD) procedures, guaranteeing regulatory compliance. 
• The last effort mentioned on our list is supporting law enforcement by giving them the means to track down shell corporations and identify networks engaged in illicit activities such as tax evasion, corruption, and money laundering. 
• Encouraging risk-based onboarding for new clients and recurring review procedures to keep an eye on and reduce possible risks over the course of the client relationship.

Although CTA data is not publicly accessible, FinCEN, law enforcement, and financial institutions may access it subject to stringent guidelines.

What Are the Penalties for Failing to Comply with the CTA?

The following consequences may arise from failing to submit timely or accurate BOI reports: 

• Civil penalty: A fine of $500 is assessed for each day the infraction persists, up to a $10,000 maximum fine. This is meant to promote prompt compliance and avoid protracted non-compliance. 
• Criminal penalty: Because wilful violations are serious and can have serious consequences, offenders may be imprisoned for up to two years.

How Should Companies Prepare for CTA Compliance?

Companies should identify all beneficial owners and control persons in order to comply with the CTA. 

Make sure you know who owns or controls at least 25% of the company. This includes partners, shareholders, and other powerful people.

Compile and confirm identification data 

Obtain official identification documents for each beneficial owner and control person, such as government-issued IDs or passports. To guarantee compliance, confirm the information's veracity and accuracy. 

Assign reporting to a compliance officer or legal firm. 

Assign a specific compliance officer or hire an experienced legal practice to manage all reporting obligations, guaranteeing accurate and on-time submissions. 

Keep a compliance log for updates and audits. 

Maintain a thorough and frequently updated compliance log. For auditing purposes, this document should document all reporting activities, ownership changes, and regulatory updates.

Set alerts for 30-day update deadlines

Put in place a system that will track and notify you of any changes in control or ownership. To maintain compliance with regulatory requirements, make sure updates are reported within the allotted 30-day period.

How Does Sanction Scanner Help with CTA-Linked AML Processes?

Institutions can use Sanction Scanner to: 

• Verify compliance and lower regulatory risks by screening beneficial owners against lists of politically exposed persons (PEPs) and international sanctions. 
• Simplify your compliance procedures by automating the Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) workflows for both new and current clients. 
• To satisfy legal requirements and guarantee transparency, keeping thorough audit trails of all checks pertaining to BOI is crucial.
• The last help on our list is as follows: by keeping an eye on ownership structures and receiving real-time alerts, you can stay ahead of possible risks and act accordingly in the event of any changes or warning signs.