A newly implemented federal law aimed at combating money laundering is causing ripples of concern among small business owners.
Enacted in 2021 and effective January 1, 2024, the Corporate Transparency Act (CTA) is a legislative measure aimed at combating various illicit activities such as tax fraud, money laundering and terrorism financing within the United States. According to the U.S. Chamber of Commerce’s website, the law seeks to enhance the capture of ownership information for specific businesses operating in or accessing the U.S. market.
Under the provisions of the CTA, certain businesses meeting specified criteria are required to submit a Beneficial Ownership Information (BOI) Report to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) or face significant penalties. For instance, the law states that individuals owning at least 25% of a company or managing it must file a BOI report with FinCEN. This report entails disclosing details that identify individuals associated with the reporting company.
The primary goal is to prevent individuals with malicious intentions from concealing or exploiting their ownership of U.S. entities to facilitate unlawful activities. According to Congress, this practice is a commonly utilized tactic that poses significant threats to national security and the economic integrity of the country.
The law impacts millions of small businesses across the U.S., and many are saying the requirements have not been clearly communicated.
Jacqueline Webster, an artist turned entrepreneur, shared her experience upon discovering the law’s implications for her analog photography business in Golden, Colorado.
“They didn’t reach out to us in any way. It was just strictly happenstance that I found out about it,” she told CBS 2.
Failure to comply could result in fines of $500 per day, up to $10,000, and a potential two-year prison sentence.
Dave Ratner, representing the Creative Law Network, expressed concerns about the law catching many small businesses off guard.
“The Department of Treasury may not be known for their marketing… I’m really happy you’re asking about it,” he stated during a video call with CBS 2.
Although the penalties for noncompliance are severe, there is a grace period for businesses established before January 1, allowing them until the end of the year to comply. New businesses have a 90-day window, while any changes such as ownership or address alterations mandate an update within 30 days.
Ratner emphasized that while small business owners may primarily interact with state-level registrations, they shouldn’t dismiss the federal law’s applicability. However, he reassured that prison time is unlikely unless there’s a willful failure to file or fraudulent activity.
Webster is among those spreading awareness about the law’s requirements.
“I’ve mentioned it to a couple of friends and they were like ‘What? Huh?’” she shared. “And it’s not a big deal, it’s just one more thing to keep track of.”
Webster disclosed that the registration process, including uploading identification documents, took her around 20 minutes and incurred no cost.
The new law aims to bolster efforts against financial crimes but presents logistical challenges for small business owners like Webster, who are now navigating the additional regulatory burden with diligence.
As the deadline for compliance approaches, many are working to ensure they meet the requirements to avoid penalties and maintain legal standing under the Corporate Transparency Act.
