Small business proprietors should remain aware of a specific regulation that is presently in a state of uncertainty. This rule obligates them to complete registration with the Financial Crimes Enforcement Network (FinCEN) by January 1.
This registration is a component of the Corporate Transparency Act (CTA), an anti-money laundering framework enacted in 2021. According to the CTA, owners and co-owners of approximately 32.6 million small enterprises are required to submit personal details to FinCEN, including a government-issued photo ID and their residential address.
While the registration process is not overly complicated, ignorance of this requirement could lead to fines that reach as high as $10,000 for small business owners. Furthermore, businesses employing more than 20 individuals and generating revenues exceeding $5 million could be eligible for exemptions from this mandate.
Currently, the regulation is stalled due to a preliminary injunction issued by a federal court in Texas on December 3, which halts the enforcement of this rule. FinCEN has indicated that registration is voluntary at this moment. Nevertheless, this injunction might be overturned if appealed, necessitating small business owners to stay informed about the ongoing legal developments.
The main purpose of the act is to unveil the operations of shell companies, with an aim to deter “criminals, organized crime organizations, and other unlawful entities from obscuring their identities and laundering funds through financial channels,” as stated by Treasury Secretary Janet Yellen in 2022.
Initially, the rules were set to take effect in 2024, allowing existing businesses until January 1, 2025, to register. Conversely, businesses established in 2024 are to register within 90 days of their formation.
Doris Dike, a principal at Dike Law Group in Frisco, Texas, which caters to small business healthcare clients, expresses concern regarding the rule’s potential implementation in 2025.
“FinCEN has overreaching policies, and I’m thankful that it’s currently on hold. I have doubts about its effectiveness in addressing money laundering,” she explained. “There are already existing laws governing how business ownership is recorded. The requirements from FinCEN may be unnecessarily burdensome and could induce anxiety among small businesses.”
Jennifer Barnes, the owner and CEO of Optima Office, an accounting firm based in San Diego with 97 employees, also contemplates registering despite the rule being on pause.
“A recent stay regarding FinCEN’s Beneficial Ownership Information Reporting is merely a stay and doesn’t signify a final verdict on the legitimacy of the requirement,” she noted in an email. “Thus, the most cautious approach would be to register before the deadline on January 1 since there’s no assurance of an extension if the stay is lifted.”