As the new year begins, businesses of all sizes will have to contend with the federal Corporate Transparency Act. The CTA is part of the 1,482 page William M. (Mac) Thornberry National Defense Authorization Act For Fiscal Year 2021 which Congress passed over a presidential veto. This law requires "reporting entities" to file beneficial ownership information reports with the Financial Crimes Enforcement Network (aka FinCEN). FinCEN's reporting rules include 23 specific types of entities that are exempt from the CTA's reporting requirement, including "securities reporting issuers" and "large operating companies" (in each case, as defined). As a result the burden of CTA compliance falls primarily on smaller business entities. Unfortunately, these are the very business entities that will be least likely to have the resources to comply with the CTA.
FinCEN has published a "Small Entity Compliance Guide" but this merely underscores the challenge for small businesses. The guide covers 50 pages and is divided into six chapters. Many small business owners already have their hands full in running their businesses and attempting to comply with the vast array of laws, rules and ordinances. These small businesses will in most cases also lack the resources to hire counsel that is familiar with the the intricacies of the CTA and FinCEN's regulations.
I am also highly skeptical that CTA will be effective in achieving its stated purpose - enabling law enforcement to counter money laundering and financing of terrorism. While law abiding companies will struggle to comply, I expect that money launderers and terrorists will not bother. After all, if they were concerned about compliance, they wouldn't be laundering money or engaging in terrorism.
Finally, there is the "big brother" aspect of the CTA. According to FinCEN, beneficial ownership information will be available to permit Federal, State, local, and Tribal officials, as well as certain foreign officials who submit a request through a U.S. Federal government agency, to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement. See Beneficial Ownership Access and Safeguards final Rule . Being a skeptic, I would add that the information will ultimately be available to Chinese, North Korean and Russian hackers.
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