The Corporate Transparency Act (CTA) significantly impacts Anti-Money Laundering (AML) efforts in the United States. Its primary goal is to enhance transparency in business ownership and entity structures to combat money laundering, tax fraud, and other financial crimes.
The CTA becomes effective on January 1, 2024, and existing reporting companies must file initial reports within one year of this effective date. Companies created after the effective date have 30 days to file from their creation or registration. FinCEN has proposed extending the initial filing deadline to 90 days for entities created or registered in 2024. Reports must be updated within 30 days of any changes in beneficial ownership or upon becoming aware of inaccurate information.
Here are some ways the CTA affects AML:
- Beneficial Ownership Reporting: The CTA mandates that reporting companies, which include a wide range of business entities, must disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). Beneficial owners are individuals who have substantial control over the company or own at least 25% of the ownership interests. This requirement helps in identifying the real individuals behind business entities, making it harder for money launderers to hide their illicit funds within complex corporate structures.
- Enhanced Due Diligence: AML regulations require financial institutions to conduct due diligence on their customers to identify and mitigate money laundering risks. With the information provided through the CTA, financial institutions will have access to more comprehensive data about their business customers, facilitating more robust customer due diligence processes. This can help institutions better understand the nature of their clients’ businesses and identify any potential red flags associated with beneficial owners.
- AML Investigations: The CTA’s beneficial ownership reporting will provide law enforcement and regulatory agencies with a powerful tool to trace and investigate money laundering activities. When suspicious transactions or financial activities are identified, investigators can use the disclosed beneficial ownership information to trace the source and flow of funds more effectively, aiding in AML investigations.
The CTA also affects foreign companies registering to do business in the United States. This means foreign entities operating within the U.S. must provide beneficial ownership information. This also has global AML implications, as it can impact the ability of individuals and entities involved in money laundering and other financial crimes to use U.S.-based companies for illicit purposes. The CTA also requires FinCEN to establish a secure, non-public database for storing and accessing beneficial ownership information. Law enforcement, regulatory agencies, and financial institutions can use this database to conduct AML investigations and due diligence. Sharing and accessing this information is a valuable resource in the fight against money laundering.
This regulation includes penalties for non-compliance with fines ranging from $500 to $10,000 per violation and possibly imprisonment for up to two years. These penalties incentivize businesses to comply with the reporting requirements, making it harder for money launderers to operate through non-compliant entities.
The CTA significantly impacts AML efforts in the U.S. by improving the transparency of business ownership and beneficial ownership reporting.
This information is vital for financial institutions, law enforcement agencies, and regulatory bodies to detect, investigate and prevent money laundering and other financial crimes. The CTA provides a more comprehensive view of business ownership structures, making it more challenging for criminals to hide illicit funds within complex corporate networks.
About the Author
Mayra De La Garza
Mayra is a compliance expert with extensive experience in the payments and financial services industry. She is currently serving as the Compliance Software Director for epay, where she leads the company's compliance software efforts. Mayra joined epay in July 2021 after spending 12 years at Walmart, where she served in various roles within the Financial Services space, specifically in the compliance space. Mayra's areas of expertise include payments, financial services, AML compliance, governance, and relationship management.
Throughout her career, Mayra has been recognized for her leadership, strategic thinking, and ability to drive results. She is passionate about compliance and ensuring that companies operate ethically and in compliance with applicable laws and regulations. Mayra holds a Master of Business Administration (MBA) from the University of Arkansas.
