CTA vs. AML Regulations
As of January 1, 2024, the Corporate Transparency Act (CTA) mandates that certain entities report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). Concurrently, financial institutions have their own obligations under Anti-Money Laundering (AML) regulations to collect beneficial ownership information from customers during the account opening process. This article clarifies the differences between these requirements and their implications for entities and financial institutions.
Beneficial Ownership Reporting under the CTA
The CTA requires certain entities, including many small businesses, to report their beneficial owners to FinCEN. The term "beneficial owner" refers to individuals who either exercise substantial control over an entity or own or control at least 25% of the ownership interests. To read more about beneficial owner reporting requirements in the United States you may click here.
Key Points of CTA:
- Purpose: The primary goal of the CTA is to combat money laundering and illicit activities by providing law enforcement and government agencies with access to beneficial ownership information.
- Scope: Entities that need to comply with the CTA must report details such as names, dates of birth, addresses, and unique identifying numbers from government-issued IDs of their beneficial owners.
Deadlines:
- Entities created or registered before January 1, 2024, must report by January 1, 2025.
- Entities created or registered in 2024 must report within 90 days after their creation or registration is effective.
- Entities created or registered on or after January 1, 2025, must report within 30 days after their creation or registration is effective.
- Any updates or corrections to previously filed beneficial ownership information must be submitted within 30 days.
Beneficial Ownership Information Collection by Financial Institutions
Financial institutions are required to collect beneficial ownership information from certain customers under Federal Customer due diligence (CDD), Anti-money laundering (AML), and Know Your Customer (KYC) regulations. These requirement aims to ensure that financial institutions know their customers to prevent the misuse of financial systems such as banks for illicit activities.
Key Points of CDD/AML/KYC:
- Purpose: The primary objective is to prevent financial institutions from being used to facilitate money laundering, drug trafficking, and other illegal financial activities by verifying the identities of beneficial owners.
- Scope: Financial institutions must collect detailed information, including names, dates of birth, addresses, social security numbers, and other identifying information, from beneficial owners.
Definition Differences:
- Under the "control prong," financial institutions must collect information about a single individual with significant responsibility to control, manage, or direct the entity.
- Under the "ownership prong," they must collect information on each individual who owns 25% or more of the entity’s equity interests.
Comparison of Requirements
| Information Collected | FinCEN Reporting | Financial Institution Collection |
|---|---|---|
| Name | ✔️ | ✔️ |
| Date of birth | ✔️ | ✔️ |
| Address | ✔️ | ✔️ |
| Social security number | ❌ | ✔️ |
| Unique identifying number (ID) | ✔️ | ❌ |
| Entity name | ✔️ | ✔️ |
| Trade name/DBA | ✔️ | ❌ |
| Entity type | ❌ | ✔️ |
| Jurisdiction of formation/registration | ✔️ | ❌ |
| Tax identification number | ✔️ | ✔️ |
| Information about company applicants | ✔️ | ❌ |
| Certification by the filer | ✔️ | ❌ |
| Certification by the account opener | ❌ | ✔️ |
Conclusion
While both FinCEN and financial institutions such as banks collect beneficial ownership information, they do so for distinct purposes and under different regulatory frameworks. Entities subject to the CTA must ensure compliance by reporting to FinCEN, while also fulfilling any additional requirements imposed by financial institutions during account openings.
Understanding these differences is crucial for maintaining compliance and supporting efforts to combat financial crimes. For further details, visit FinCEN’s beneficial ownership information reporting requirements here.You may read FinCEN's Notice to Customers of Financial Institutions here.
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