Follow the Money: New Rules Under the Corporate Transparency Act

The federal government is  cracking down on  those who exploit anonymous shell corporations, front companies, and other loopholes to hide ownership of small businesses and their beneficial owners. While meant to deter  crimes, such as corruption, drug and arms trafficking, the law will also  result in a lack of anonymity for investors in film projects. The Anti-Money Laundering Act of 2020 includes  the Corporate Transparency Act (CTA), which became effective with Congress’ override of former President Trump’s veto on January 1, 2021.
 
The United States did  not have a centralized aggregation of information about who owns and operates legal entities within the United States. The CTA requires certain companies  to disclose its beneficial owners to the United States Treasury’s Financial Crimes Enforcement Network (“FinCEN”). Reporting companies  will include corporations, LLCs, limited partnerships, and similar entities, which are  created by filing documents  with any Secretary of State’s office.
 
There are almost two dozen types  of exempt entities which  do not need to submit a beneficial owner report to FinCEN because they are already closely regulated, such as publicly traded companies, governmental entities, banks, credit unions, securities broker/dealers, other SEC regulated entities, insurance companies, charities, and certain grandfathered private businesses.
 
On December 7, 2021, FinCEN issued proposed rules to implement the beneficial ownership information reporting provisions of the CTA. The comment period on the proposed rules is open until February 7, 2022. Under the proposed rule, a beneficial owner would include any individual who (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company.
 
To submit comments on proposed rules: Link
News Release on Proposed Rules
 Fact Sheet