Current Scenario of the CTA
According to the current situation, some sections of the Act need more clarification and specifications to address minor details. The Corporate Transparency Act has not clearly defined beneficial owners as direct or indirect substantial controlling authorities. Any failings in the Act can lead to more challenges for businesses and violations of the Act will lead to heftier penalties.
Anyone who assists in the creation of legal entities like attorneys will be monitored. Previous iterations in the Corporate Transparency Act categorised formation agents as financial entities and made them subject to the AML and reporting obligations of the Bank Secrecy Act. In the current version of the Act, references to formation agents have been removed. However, the rulemaking authority given to the Department of Treasury can expand requirements for business. This will ultimately broaden the scope of potential criminal liability.
Next Steps for the Financial Institutions
Until long-term actions have been decided, here are some short-term actions that must be considered by form corporation and entities:
- Assess if your company has reported the beneficial ownership requirements according to the Corporate Transparency Act or not.
- Create a checklist of the reporting requirements
- Under the Act, every beneficial owner must be identified
- Endorse all identity verification documents of every individual that is considered as a beneficial owner
- Plan renewal in case of expiration of the documents of UBOs
- There must be a risk ranking system that account for variables like country of origin, service provided, and categorize the levels of risk within relationships
- A “trust-but-verify” approach must be leveraged if any of the information raises red flags suggested by FATF
- There must be a sound process for keeping the reporting mandates in touch. This includes the people responsible for collecting information of beneficial owners and filing with FinCEN
- Annual monitoring for tracking compliance is important
- Sufficient resources must be allocated for better compliance with the new filing obligation
Penalties for Non-Compliance with Corporate Transparency Act
The CTA has announced hefty penalties for any company that does not comply with the regulations. According to the Act, USD 10,000 must be paid as civil penalties. Furthermore, criminal fines and up to three years of imprisonment have also been announced. In order to comply with these regulations and avoid any fines or penalties, it is better that the US-based companies employ Anti-Money Laundering (AML) screening.
With the help of AML screening, organisations verify all the stakeholders and any high-risk customers can be identified before they become the company’s problem. This screening cross-checks the identity of the person with numerous sanction lists. Lastly, enhanced due diligence checks are also an option that can help your company comply with the regulations.
Summing It Up
The rise in criminal activities has led to amendments in Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. The new laws are designed to make customer due diligence and identity verification measures as rigid as possible. Criminals should not be allowed to surpass these checks at any cost, and better laws can help companies in this regard. The Corporate Transparency Act (CTA) will be active in January 2022 and businesses have until then to report FinCEN about their Ultimate Beneficial Owners. USD 10,000 civil penalties, criminal penalties, and up to three years of imprisonment is the punishment if any organisation fails to comply with CTA.
The purpose of Corporate Transparency Act is to combat money laundering and terrorist financing. With the help of Anti-Money Laundering screening, companies can ensure enhanced due diligence of all the customers. It will not only help onboard the right customers, but it will also assist your company in better compliance with CTA.
Multi-layered identity verification and background screening of beneficial owners is now inevitable for the US finance sector. All risky entities will be highlighted and reported timely, reducing the risk of money laundering and terrorist financing in the USA.
Want to know more about automated AML screening? Talk to our experts.
