On December 11, 2020, Congress passed the National Defense Authorization Act, an annual bill generally meant to shore up U.S. defense spending. This year’s bill added a piece of legislation known as the Corporate Transparency Act, which specifically targets anonymous shell companies, tools that have allowed criminal networks, human rights abusers, and tax evaders around the world to thrive while hiding their financial tracks.
The Act requires the owners of any company that is not otherwise overseen by the federal government (by filing taxes, for example, or through close regulation) to file a report that identifies each person associated with the company who either owns 25% or more of the company or exercises substantial control over its management and operations. That report, including names of any owners, dates of birth, addresses, and an identifying number, goes to the Financial Crimes Enforcement Network (FinCEN). The Act also increases penalties for money laundering and streamlines – through the creation of a database -cooperation between banks and foreign law enforcement authorities, such as Interpol.
The willful failure to provide complete and/or updated information required under the Act and the willful provision of false or fraudulent information each carry significant civil and criminal consequences. Violations carry civil penalties of up to $500 per day that the violation continues and criminal fines up to $10,000 and/or imprisonment for up to two years. The obligations under the Act apply to beneficial owners and to applicants. The unauthorized disclosure of information collected under the Act carries the same civil penalty but a higher criminal penalty of up to $250,000 and a higher maximum term of imprisonment of five years. Unauthorized disclosure includes both a disclosure by a government employee and a disclosure by a third-party recipient of information under the Act.
If you are a person whose ownership interest or control meets the threshold the Act establishes for a covered company or if you have a question regarding whether your interest or control over a given company meets the threshold, then you should consult counsel regarding whether you are required to provide information pursuant to the Act, how to provide it, and when and how to update it in order to comply with your legal obligations and avoid civil and criminal liability.
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