CTA Law

The Corporate Transparency Act became a law on January 1, 2021.  The CTA provided that it would become effective January 1, 2022.  This law requires almost all existing companies formed in the United States since the U.S. became a country to file a report with the Financial Crimes Enforcement Network (FinCEN) that discloses information about each of the company’s “beneficial” owners.  A beneficial owner is a person, entity or trust that own 25% or more of the company or who has substantial control of the company.

These FinCEN filings must disclose the following five items of information about each beneficial owner:

1. name
2. address
3. birth date
4. number from a driver’s license or passport
5. picture of the driver’s license or passport.

That’s it.  The organization that is supposed to protect all Americans, the U.S. government, has been unable for 21 months to create a system to collect five tiny items of information.

A recent article called “New US company owner database ‘taking way too long’ to implement, experts warn” says:

“Experts say the Treasury Department is badly behind schedule in implementing the law mandating the government to collect ownership data from companies operating in the United States. . . . There is a lot of anxiety that the Biden administration will take the whole four years to finalize the rules setting up the beneficial ownership registry . . . . FinCEN has only proposed one of the three sets of rules needed to launch the ownership database. And even this first set — governing how the data will be collected and who must report company ownership — hasn’t been finalized”

During a Senate Financial Services and General Government Appropriations Subcommittee U.S. Senator Cindy Hyde-Smith questioned Deputy Treasury Secretary Wally Adeyemo about the Biden administration’s actions that added new regulatory burdens on small businesses.  Senator Hyde-Smith also told Adeyemo that the Corporate Transparency Act imposes financial and compliance burdens on small businesses.  The CTA created a Beneficial Ownership Database that is intended to help fight financial crimes by bringing transparency with respect to who forms, owns, and controls American businesses and foreign entities that do business in the United States.  Hyde-Smith said:

“Treasury estimates the proposed rules to implement the Corporate Transparency Act will require more than 25 million existing small businesses to spend an aggregate of more than $4 billion to submit reports on their beneficial owners to the Financial Crimes Enforcement Network.  A lot of people really see this as an extra mandate and as extra work.  I hope that it does prove to be a very beneficial tool at addressing this issue, because it will be extremely burdensome for a lot of people.”

On May 10, 2022, U.S. Senators Marco Rubio (R-FL) and Elizabeth Warren (D-MA) sent a letter to U.S. Treasury Secretary Janet Yellen and Acting Director of the Financial Crimes Enforcement Network (FinCEN) Himamauli Das regarding the delayed implementation of Rubio’s Corporate Transparency Act (CTA), which was signed into law in 2020 (P.L. 116-283).  Senators Chuck Grassley (R-IA), Sheldon Whitehouse (D-RI), Ron Wyden (D-OR), Bob Menendez (D-NJ), and Bill Cassidy (R-LA) also signed the letter.

“The Treasury Department has yet to finalize the implementation of the CTA—or even set a timetable for its completion,” the senators wrote. “In various hearings last month, both of you could only commit to proposing the second CTA rule by the end of ‘this year.’ These delays run contrary to the clear instructions of Congress, undermine American efforts to respond to Russia’s war against Ukraine, and hinder broader efforts to protect the U.S. financial system against the threat of illicit finance.” 

The text of the letter is below.

Dear Secretary Yellen and Director Das:

We write to urge the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) to swiftly implement the Corporate Transparency Act (CTA).

Passed by Congress last year, the CTA is landmark legislation to upgrade our country’s anti-money laundering laws. “For years, experts routinely ranked anonymous shell companies— where the true, ‘beneficial’ owners are unknown—as the biggest weakness in our anti-money laundering safeguards.” The CTA directly tackled this problem by requiring FinCEN to create a national registry of beneficial owners of companies within the United States, bolstering our nation’s efforts to combat kleptocracy, transnational crime, terrorism, and other illicit activity.

Vladimir Putin’s invasion of Ukraine has only amplified the importance of the CTA. The federal government cannot properly implement sanctions against Putin and his oligarchs if it does not know the full extent of their holdings. But recent reporting suggests that the Treasury Department presently lacks this information, underscoring the urgent need for beneficial ownership disclosure as required by the CTA to protect America’s financial stability and national security.

Nevertheless, the Treasury Department has yet to finalize the implementation of the CTA —or even set a timetable for its completion. We appreciate that FinCEN is working with limited resources, and Congress is working to remedy that through the appropriations process. Still, over four months after the statutory deadline for implementation, FinCEN has only proposed one of its three CTA rules. In various hearings last month, both of you could only commit to proposing the second CTA rule by the end of “this year.” These delays run contrary to the clear instructions of Congress, undermine American efforts to respond to Russia’s war against Ukraine, and hinder broader efforts to protect the U.S. financial system against the threat of illicit finance.

For these reasons, we respectfully request that FinCEN immediately accelerate its implementation of the Corporate Transparency Act and provide an update and a detailed timeline on your efforts to do so no later than May 23, 2022. Thank you for your attention to this important matter.

On May 5, 2022, U.S. Senators Marco Rubio (R-FL), Sheldon Whitehouse (D-RI), Ron Wyden (D-OR), and Chuck Grassley (R-IA) sent a bipartisan comment to the Financial Crimes Enforcement Network (FinCEN) encouraging the efficient, effective implementation of a beneficial ownership reporting system, as required by the Corporate Transparency Act (CTA).

The comment is below.

To Whom It May Concern,

We write in response to the Financial Crimes Enforcement Network’s (FinCEN) advance notice of proposed rulemaking regarding to the implementation of the Corporate Transparency Act (CTA), enacted into law as part of the National Defense Authorization Act for Fiscal Year 2021.  As a bipartisan group of senators, we encourage FinCEN to implement a strong, efficient, and effective system that respects congressional intent.

The passage of the CTA marked the culmination of a years-long effort in Congress to combat money laundering, international corruption, and kleptocracy by requiring certain companies to disclose their beneficial owners to law enforcement, national security officials, and financial institutions with customer due diligence obligations.  During that time, Congress held numerous hearings across a host of committees, sought input from key stakeholders, worked with officials from both the Obama and Trump administrations, and considered multiple pieces of related legislation and models from other nations.

In crafting the CTA, Congress negotiated many complex policy issues, including what information would be reported, how that information would be collected, and who would have access to it.  We and other drafters of this law sought to strike the proper balance between collecting accurate and useful information and not overburdening businesses with compliance obligations.  In the end, the CTA also received strong support from a vast and diverse stakeholder coalition, including law enforcement, national security experts, the business community, the real estate community, the financial sector, and non-governmental organizations.

In light of the broad support for the CTA, we urge FinCEN to take all steps to ensure that the beneficial collection system reflects Congress’s intent that the system produce high-quality data and that authorized users have timely access to that data.  To achieve this, FinCEN should be mindful not to leave loopholes that could dilute the quality of the information collected or allow bad actors to evade reporting.  Additionally, the information is only useful if authorized users are able to efficiently access the data.  As such, FinCEN should ensure that authorized users, including law enforcement and national security officials, and financial institutions with customer consent, have early, timely, and full access to beneficial ownership information.  The access procedures should build on existing protocols and those provided for in the legislation and should avoid creating redundant hurdles that would unnecessarily delay access.

In short, the CTA is the product of a sensitive and painstaking legislative process, and its passage represents perhaps the most important anti-money laundering reform of the past decade.  Despite the legislative success, this achievement can only be realized if the system works in practice.  As such, we encourage FinCEN to implement a straightforward, efficient, and effective system and to do so promptly.

FinCEN Director Him Das testified on April 28, 2022, before the House Committee on Financial Services.  Very little of his written statement dealt with the Corporate Transparency Act.  He closed by saying:

“In closing, timely and effective implementation of the AML Act, which includes the CTA, is a top priority. . . . limited resources have presented significant challenges to meeting the implementation requirements of our expanded mandate under the AML Act, including the CTA’s beneficial ownership requirements. As you are aware, we are missing deadlines, and we will likely continue to do so. FinCEN’s budget situation has required prioritization across the board, but we are working hard to meet our obligations.

See his prepared statement.

A February 9, 2022, article in the Wall St. Journal discusses the Corporate Transparency Act (CTA).  Here are some statements from the article:

“FinCEN in December released what it said were the first of three sets of proposed rules governing how the database will work. . . . FinCEN on Tuesday said it received more than 230 comments in response to its proposed rules. . . . stakeholders, however, including organizations representing financial institutions and small businesses, expressed concerns over the potential challenges in complying with various aspects of the proposal, including the deadlines for submitting or correcting information submitted to FinCEN. . . . Several groups . . . said that the complexity of FinCEN’s definition of a beneficial owner could force even the smallest companies to engage attorneys and consultants to navigate the requirements [emphasis added], a measure that the NFIB argued small businesses couldn’t afford.”