On January 1, 2021, the Corporate Transparency Act was passed by Congress. The Corporate Transparency Act allows the government to close off a major avenue for money laundering in the U.S, by taking away the transparency formerly allowed to shell company owners.
Our tax attorneys have broken down what the CTA will mean for the United States and what it could mean for both individuals and businesses.
What is the Corporate Transparency Act
The Corporate Transparency Act (part of the National Defense Authorization Act) aims to combat money laundering. In recent years, the United States has been recognized as a safe haven for money launderers, tax-evaders, and organized crime members hoping to distribute their illegally earned money into the economy. The size of the economy allows billions of dollars to enter into circulation without raising alarms while the LLCs (Limited Liability Corporations) allow the owners to remain anonymous while conducting illegal business.
These LLCs, often referred to as shell companies, are anonymously owned, and are often listed as the number one weakness in the United States’ anti-money laundering safeguards. Laws allowing shell companies to conduct business without publicizing names of owners or employees allow these businesses to conduct illegal activities without the possibility of being found guilty of a crime (or being found at all).
Money will typically flow into the country through the use of these shell companies. The companies will use the money to make large purchases in cash, entering the laundered money into circulation and acquiring assets in the process. These purchases typically include art, real estate property, and corporate assets. This so-called dirty money is known to fuel many luxury real-estate markets, specifically in cities in South Florida.
The passing of the Corporate Transparency Act will require these corporations and LLCs to disclose to relevant parties (law enforcement groups, parties with responsibilities to anti-money laundering mandates) who the owner of the company is. This owner must be a real, natural person and they shall be required to take responsibility for the organization. This simple act will cause shell companies operating in the United States to be recognized by law enforcement and anti-money laundering officials, and it will give them a person to turn to in the event that illegal activities come to light about the company.
Who is Affected by the Corporate Transparency Act
The Corporate Transparency Act aims to target any anonymous persons conducting business in the United States.
This includes both Domestic and Foreign LLCs. It’s worth mentioning that if a foreign owner is reported as the beneficiary for an LLC, it can be difficult for the government to track down enough information to make a full assessment of the legality of business dealings, therefore in relation to Foreign LLCs they are expecting to run into some difficulty gathering information.
The law also targets anonymous shell companies, in an effort to develop a complete information system containing information on all people conducting business in the country.
It targets anonymous homebuyers, specifically buyers purchasing in large sums of cash, as this is a preferred method of circulating laundered money, and doing so anonymously can be considered a sign of illegal activities. This law at its core aims to collect information and hold parties accountable for their illegal business dealings.
Where is this New Information Stored and Who Has Access to It?
The required CTA information will be reported to the U.S Treasury’s Financial Crimes Enforcement Network (FinCEN) and it will be stored in their databases.
Federal, state, and local law enforcement officers will have access to this information for relevant investigations. Financial institutions that are required to enforce anti-money laundering efforts will have access to the data as well.
Penalties for Violating the New Corporate Transparency Act
Violating this law can result in both civil and criminal penalties. There is up to a $10,000 fine for not obeying the law, and up to 2 years in prison if the offense is found to be willful.
Consult our International Tax Attorneys
The passing of the Corporate Transparency Act will affect both domestic and international business dealings for people operating LLCs or shell companies within the United States.
The criminal tax attorneys at Evolution Tax and Legal are experienced in both accounting and tax law, and we utilize our expertise to help you develop a plan that will work for your business. If you need to discuss how the passing of the Corporate Transparency Act will affect your business, and how to navigate the nuances of information reporting and tax-paying for your business, book a FREE consultation with the lawyers at Evolution Tax and Legal today!