Hamilton Law Blog

Understanding The CTA & Whether It Is Constitutional

Posted by Ean P. Hamilton, Esq. | Jun 14, 2024 | 0 Comments

To combat illicit activities, the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) took a step forward. As of January 1, 2024, FinCEN now mandates that certain businesses within the United States disclose crucial information regarding their beneficial owners. 

This requirement stems from the bipartisan Corporate Transparency Act of 2021, which aims to deter illegal finance operations by shedding light on the individuals who have ultimate ownership or control over companies. Businesses already operating before the start of 2024 have until January 1, 2025, to comply with these new reporting obligations. Meanwhile, entities established or registered in 2024 are given a 90-day timeframe to submit their beneficial ownership information following the notice of their creation or registration.

Beneficial Ownership Defined 

The definition of a beneficial owner and what constitutes "substantial control" are key aspects of the CTA that businesses must fully understand to comply with the new regulations. Beneficial owners, as defined, are any individual who directly or indirectly has significant influence over the company's operations or holds a minimum of 25 percent of the company's ownership interests. Substantial control can include roles such as senior officers who make critical decisions affecting the company's strategic direction, financial management, and operational policies. This expansive definition ensures that those who have a pivotal role in guiding the company, whether through decision-making authority or financial control, are transparently identified, thereby aiming to eliminate any potential for anonymous influential activities that could facilitate financial misconduct.

Understanding these definitions is crucial for companies as they assess their compliance requirements under the new legislation. Companies must meticulously evaluate their organizational structure and ownership to determine who qualifies as a beneficial owner under the stipulated criteria. This process involves thoroughly reviewing various control mechanisms, whether through direct authority over business decisions or indirect influence via contractual or financial arrangements. By doing so, companies adhere to legal mandates and enhance their governance and accountability frameworks, contributing to a more transparent business environment. 

Is It Constitutional?

We are not here to advocate for or against it, but it is important to highlight that the CTA has had its challengers—and this may cause confusion. On March 1, 2024, a significant legal development occurred when a federal district court in Alabama ruled that the CTA was unconstitutional. 

This decision specifically prevents the enforcement of the CTA against the plaintiffs involved in the case. However, FinCEN has signaled that all other entities should continue to adhere to the Act's requirements. Despite the ruling, the U.S. Department of the Treasury promptly appealed the decision, affirming its intention to enforce the CTA while the appeal is pending. This ongoing legal battle underscores the complex landscape of compliance that U.S. and non-U.S. entities face, with implications for their reporting obligations and how they manage their corporate governance moving forward.

Hamilton Law Will Help Your Business with the CTA 

Complying with the CTA and understanding its constitutional implications can be daunting for any business. At Hamilton Law, we're committed to providing clear, comprehensive guidance on working within these new requirements. If your business needs assistance deciphering beneficial ownership details, compliance timelines, or understanding the impact of recent court rulings, contact us today for a free consultation

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