Corporate Transparency Act & Its Burdens (Steven Friedman Commentary)

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Congress enacted the Corporate Transparency Act on a bipartisan vote in early 2021, and it became law on Jan. 1. The CTA requires about 33 million small businesses to report beneficial owner information — identifying information about individuals who directly or indirectly own or control a company — to the U.S. Treasury Department’s Financial Crimes Enforcement Network before the end of 2024. With this data, the government will work to curb money laundering and other financial crimes.

The CTA has placed some added burdens on entities and their leaders. It all starts with awareness. There are entities everywhere that may not have the systems in place or the proper advisers to flag this for them. As a result, they may not hear about the CTA or their responsibilities under the law until it’s too late.

Also, there’s the time and effort it takes to file proper reports. Consider these scenarios:

► A financial services limited liability company has $1 million in annual revenue, four employees and a single owner.

► A team of three real estate investors has a portfolio of hundreds of properties across several states, and each property is its own business entity that would have to file a report.

In the first situation, the filing process would be relatively simple. With all of the proper documents at the ready and a reliable Internet connection, the business owner could go to the FinCEN website and complete the form in under one hour. In the second, the initial round of filings could get incredibly complex and could take weeks or months to complete.

Plus, in either situation, entities also must manage their data and reports and file updated or corrected reports anytime there’s a change in information. In any of these cases, the correct information needs to be captured and stored and a whole new report with all relevant details needs to be filed for each entity. It’s not possible to change just one piece of information. The more owners and information in play, the more complex this management process will be and the more often information will change that will force the entity to file updates and corrections.

Ongoing compliance will be a much bigger issue for reporting companies than the initial filing process. Even a couple of relatively minor changes could trigger a weeks- or months-long refiling and data continuity process. All of that time and effort add up fast, and could still produce discrepancies and errors due to human mistakes.

Organizations should fully comply with the CTA while spending as little time and effort to do so as possible. As a result, they should look to invest in tools that automate and standardize CTA processes, minimizing the amount of manual work involved. One possibility is to turn to software that can assist with the filings, like the software-as-a-service (SaaS) platform that Platinum Filings built to help entities file their CTA reports.

For more information about anything related to the CTA (which companies need to report, what ownership information should be submitted, possible penalties, how to minimize time spent on compliance, etc.) contact a firm like ours that specializes in this area.

Steven Friedman is CEO of Platinum Filings, a national leader in the CTA and providing corporate and compliance-based services to legal professionals and corporate departments around the world.