Corporate Transparency Act goes into effect
In the book Nineteen Eighty-Four, George Orwell describes a world where every citizen is under constant observation by the authorities. The people are reminded of this by the slogan "Big Brother is watching you." Starting this year, U.S. business owners will come under a new form of government surveillance that might remind some of Orwell's dark vision. As with most government regulation, it's said to be for the greater good, in this case, the goal of preventing money laundering, tax fraud, and other illicit activities. The result is a law that requires something never before seen in this country: disclosure of the identities and personal information of most small (non-public) business owners to federal authorities.
The Corporate Transparency Act (CTA) is a law passed in 2021 (over President Trump's earlier veto), that requires many U.S. non-public corporations and LLC's to identify any person who holds a 25% or greater ownership interest or who exercises substantial control over the company. The American Bar Association's Business Law Section has this to say about the CTA:
The furthest and widest reaching federal business entity law ever enacted, the Corporate Transparency Act (“CTA” or “Act”) will impact an estimated 32.6 million current businesses, with its implementation going into effect on January 1, 2024. An estimated additional five million newly formed businesses will also be swept under the CTA’s purview each subsequent year. However, many business owners, investors, and advisers are unaware of the CTA and its looming deadline, and when they learn of it, they are often taken aback by its scope (and even its mere existence).
The law applies to businesses with fewer than 20 employees and under $5,000,000 in revenues. This describes a lot of staffing and recruiting agencies. The CTA requires covered companies to report detailed personal information about the business owners to the Treasury Department's Financial Crimes Enforcement Network (FinCEN). Each Corporation or Limited Liability company must report the following information about its 25%+ owners:
Full legal name
Date of birth
Complete current address
Unique identifying number and issuing jurisdiction from, and image of, one of the following:
» U.S. passport
» State driver’s license
» Identification document issued by a state, local government, or tribe
» If an individual does not have any of the previous documents, foreign passport
The Treasury Department will store this sensitive information in a supposedly "secure, confidential database" for use by law enforcement authorities. Starting on January 1, 2024, any newly created company that is covered will have 90 days to report their ownership information to FinCEN. Companies that were in existence before January 1, 2024, have until January 1, 2025, to file their initial reports. After January 1, 2025, the reporting deadline for new companies goes down to 30 days.
Non-compliance can result in high penalties and possible imprisonment. The escalating fines range from $500 to $10,000 per violation and jail time of up to two years. This is not like forgetting to file your annual state corporate report! You can find more information in the Treasury Department's Small Entity Compliance Guide.
Many will be shocked to learn about this seismic shift in government oversight of America's business owners. There are serious questions about the potential efficacy of this law to actually stop crime. We* here at Staffing Legal News find it ironic that as the government passes volumes of legislation designed to protect our personal privacy, it enacts a bill that destroys privacy in the context that some would say matters most to our traditional freedoms - freedom from government surveillance.
*It's actually just me, but I like to use the "royal we" when editorializing.