CTA filing deadline approaches, area law firm reminds clients

SYRACUSE — Businesses face a key regulatory filing deadline at the end of this year under a federal law that seeks to prevent money laundering and other illicit financial transactions via companies. The filing deadline for the Corporate Transparency Act (CTA) is Dec. 31, Syracuse law firm Mackenzie Hughes LLP reminded its clients in an Oct.7 email. The CTA is intended to address and guard against money laundering, terrorism financing, and other forms of illegal financing by mandating certain entities (primarily small and medium-size businesses) to report “beneficial owner” information to the Financial Crimes Enforcement Network (FinCEN). Penalties for willfully violating the CTA’s filing requirements include (1) civil penalties of up to $591 per day, (2) a criminal fine of up to $10,000, and/or (3) imprisonment of up to two years, the law firm said. The CTA was enacted on Jan. 1, 2021, as part of the National Defense Authorization Act, representing the most significant reformation of the Bank Secrecy Act and related anti–money laundering rules since the U.S. Patriot Act. Entities required to file under the CTA will also have ongoing filing requirements when there is a change in owner information, including address change. Mackenzie Hughes then noted that the details of the ongoing CTA filing requirements aren’t part of the Oct. 7 announcement.

Entities dealing with the new CTA reporting requirements

Entities required to comply with the CTA include corporations, limited liability companies (LLCs), limited liability partnerships (LLPs) and other types of companies that are created by a filing with a Secretary of State (SOS) or equivalent official. The CTA also applies to non–U.S. companies that register to do business in the U.S. through a filing with an SOS or equivalent official, the law firm said. The filing requirements under the CTA have some exceptions. Many of the exceptions apply to entities already regulated by federal or state governments and already disclose their beneficial ownership information to governmental authorities. Another notable exception is for “large operating companies” defined as businesses that meet requirements that include employing at least 20 full-time employees in the U.S.; generating U.S. gross revenue (or sales) of more than $5 million on the prior year’s tax return; and maintaining an operating presence at a physical office in the U.S.

“Beneficial owner” of a reporting company

The Mackenzie Hughes email then addressed the question of who is considered a “beneficial owner” of a reporting company? A beneficial owner is any individual who, directly or indirectly, exercises “substantial control” or owns or controls at least 25 percent of the company’s ownership interests. An individual exercises substantial control if the individual: (1) serves as a senior officer of the company; (2) has authority over the appointment or removal of any senior officer or a majority of the board; or (3) directs, determines, or has substantial influence over important decisions made by the reporting company. Thus, senior officers and other individuals with control over the company are beneficial owners under the CTA, “even if they have no equity interest in the company,” per Mackenzie Hughes. In addition, individuals may exercise control directly or indirectly, through board representation, ownership, rights associated with financing arrangements, or control over intermediary entities that separately or collectively exercise substantial control. For a CTA filing, required information for each beneficial owner includes full legal name, residential address, date of birth, and a copy of front and back of current valid driver’s license. Mackenzie Hughes also noted that those needing to do so can make filings with FinCEN at no cost using FinCEN’s website: https://www.fincen.gov/boi. The assistance of counsel isn’t needed to make such filings, the law firm added.