New Financial Reporting Requirements Mean Businesses Must Act to Avoid Fines and Criminal Penalties 

Businesses may have been spared new registration requirements as President Trump vetoed the National Defense Authorization Act (NDAA) for Fiscal Year 2021, but recent House and Senate vetoes will now make those requirements a reality. 

Changes To Beneficial Ownership Reporting

The NDAA is a complex piece of legislation. It includes the Anti-Money Laundering Act of 2020 (AMLA). The AMLA in turn includes the Corporate Transparency Act (CTA). The AMLA also expands another act known as the Bank Secrecy Act (BSA). 

The recent changes to the BSA overhaul financial crime monitoring practices in the United States. AMLA creates a closed and secure central registry that will track “beneficial ownership” in companies that are formed or registered to do business in the US. The registry will be administered by the Financial Crimes Enforcement Network (FinCEN). While the system will remain closed to the public, information collected under the AMLA and the CTA can be accessed and used by state law enforcement authorities and by “a Federal agency engaged in national security, intelligence, or law enforcement activity.  

Theoretically, the availability of this information to these agencies will help facilitate the investigation and prosecution of financial crimes, but it will also impose a burden on US businesses to register or risk civil liability of $500 per day that the violation continues with an aggregate limit of $250,000, as well as a separate fine for inaccurate disclosures and imprisonment of no more than two years. 

How Does This Affect My Business?

The registration requirements apply to “reporting companies,” which are defined to include corporations, limited liability companies or similar entities, and foreign entities registered to do business in the United States. The focus of the Act is on shell companies, so some typically larger institutions are exempt from registration: for examplecompanies registered with the United States Securities and Exchange Commission (SEC), FDIC-insured financial institutions, entities having a U.S. physical location and employing more than 20 full-time employees in the U.S., and entities operating from a U.S. physical location which have filed taxes evidencing more than $5 million in gross receipts or sales. Many smaller companies, however, will be forced to file under the AMLA and its CTA. 

Once regulations are released, any company that qualifies as a “reporting company” and is not exempt must disclose and update the names and information of all “beneficial owners, defined as those who “exercise substantial control” over the entity or who own or control more than 25 percent of the ownership interest in the entity. Failure to file risks substantial financial and criminal penalties. 

AMLA requires FinCEN to promulgate implementing regulations within one year of its enactment. “Reporting companies existing when the regulations are released will have two years to comply with the requirements. “Reporting companies” formed after the regulations are released must comply upon formation, and any changes in beneficial ownership information must be submitted by reporting companies to FinCEN. 

Pittsburgh Corporate Attorneys

Companies seeking to determine whether they are “reporting companies” under the NDAA or who need assistance with compliance can contact Attorney Jacquelyn Core, an experienced member of The Lynch Law Group’s Corporate Practice. 

Jacquelyn focuses on representing small, medium, and large enterprises in complex commercial transactions, including mergers and acquisitions. She also assists with contracts and compliance. Jacquelyn is available for consultations to structure, negotiate, and close deals in the COVID-19 environment and beyond as well as to assist with corporate restructurings and other business needs. Please call (724) 776-8000 or email her directly at jcore@lynchlaw-group.com to schedule a time to discuss your business needs.

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