The Corporate Transparency Act's final rule was issued in September. Can you explain what it entails and what the impact might be? I figure it will be good for payments and fintech companies overall. Do you?
Brett Gaire, Underwriting Trainee
Brett,
The Corporate Transparency Act, (CTA) which became law in January 2021, requires companies to disclose to the U.S. government the names of their true owners. It was devised to thwart drug traffickers, oligarchs, fraudsters and other criminals that have used shell companies and front companies to hide ill-gotten gains from the federal government.
The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) issued its Final Rule for implementation of the act's requirement to report beneficial ownership information. Beneficial owners, according to reporting from Foley & Lardner LLP, are “any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns or controls at least 25 percent of the ownership interests of such report company." Further details on the final rule and who it affects can be found here: bit.ly/3TkSwH3.
Given that a primary objective of the CTA is to make money laundering activities more difficult while making it easier to catch criminals engaged in it, this is good news for honest professionals in the payments/fintech ecosystem. This will, however, impact partnerships and mergers and acquisitions. Added to due diligence tasks will be checking to see that potential partners or acquisitions have complied with the new reporting requirements under the CTA.
Also, law enforcement agencies are expected to use increasingly sophisticated data mining tactics to flag suspicious activity among data FinCEN will collect. This means a percentage of honest companies will be swept into AML investigations, along with criminal enterprises. This will be an unwelcome, but likely unavoidable burden on law-abiding companies that are targeted.
Thank you for your inquiry, Brett. Good luck in your underwriting career.
Editor
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