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New rules? Okay, Dua Lipa.
A recently introduced federal rule mandates that over 32 million small businesses across the nation must submit ownership information to a lesser-known agency within the U.S. Treasury Department, or risk potential penalties. However, a significant challenge looms: many of these businesses are completely unaware of this requirement.
The Financial Crimes Enforcement Network, which serves as the anti-money-laundering bureau within the Treasury Department, asserts its efforts to disseminate information about the new law. Using social media and seeking assistance from other government agencies, they aim to reach and inform the affected businesses. Despite these efforts, advocates for small businesses argue that additional measures are necessary to ensure widespread awareness and compliance.
Because of the significant lack of awareness, organizations like The National Small Business Association are taking action. In 2022, the advocacy group filed a lawsuit in efforts to challenge this sneaky law.
The Corporate Transparency Act, a comprehensive bipartisan law enacted in 2021, compels the implementation of new filing requirements. Congress aims to combat the use of anonymous shell companies and monitor the movement of illicit funds through this legislation. Effective as of January 1, the law establishes a beneficial ownership database and mandates that companies adhere to reporting requirements, submitting ownership details to FinCEN. These requirements align with existing obligations in the United Kingdom and the European Union.
According to an NSBA survey of its members conducted in November, approximately 47% of respondents admitted they were unfamiliar with the Corporate Transparency Act. Another 25% acknowledged knowing about the law but were uncertain if reporting was necessary. Only around 16% indicated awareness and a reporting obligation, while 12% were aware but not obliged to report.
Failing to submit ownership information to FinCEN can result in substantial criminal and civil penalties, including repercussions for senior executives. The agency emphasizes that willful non-compliance may incur fines of up to a whopping $591 per day for each violation.
In its inaugural month, FinCEN received approximately 400,000 filings. However, small businesses and state secretaries overseeing new company registrations argue that this figure represents only a fraction of the total entities obligated to file. They contend that FinCEN’s educational campaign has fallen short of effectively reaching the broader audience that needs to comply with the new requirements.
One factor contributing to the limited awareness, as noted by those involved with small businesses, is the relative unfamiliarity with FinCEN itself. Historically, FinCEN, a modest and somewhat obscure bureau, primarily interacted with banks and other financial institutions. They haven’t had a lot to do with small businesses at all.
The reporting requirements, excluding businesses with over 20 employees and numerous heavily regulated public entities, predominantly target small and private companies. This places a significant burden on these entities, many of which might lack the personnel and resources necessary to fulfill these obligations.
There’s a pressing need for compliance, especially among new companies, as emphasized by small business advocates and legal consultants. Entities established in 2024 face a tight deadline, with only 90 days to file after their initial registration. The earliest possible deadline is in early April.
In contrast, companies formed prior to this year have a one-year timeframe to submit their reports, as per FinCEN. These reports entail comprehensive information identifying individuals directly or indirectly in control of the company, encompassing names, addresses, and identification documents.
FinCEN is working to raise awareness of the rule, but is it enough? Share with a small business owner—you could save them some hefty fines!
