Almost all small and midsize businesses are now required to report more information to the U.S. government, in accordance with a federal law that took effect Jan. 1.
The Corporate Transparency Act of 2021 requires most companies doing business in the United States to file reports about the people who own them to the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury.
“This will impact just about every small business in Chicago,” said Ryan Gardner, partner at Howard & Howard Attorneys. “This is a radical shift from what has been required in the past.”
The act’s aim is to curb money laundering and other illicit activity, such as drug trafficking and terrorism, by eliminating corporate anonymity.
“Dirty money has a corrosive effect on the U.S. economy, and corporate anonymity facilitates crime and disadvantages small businesses across America,” said a senior enforcement network official.
Up to 900,000 small and midsize businesses in Illinois may be impacted, Illinois Deputy Secretary of State Scott Burnham estimated. To spread the word, the Department of Business Services will mail notices to all registered businesses throughout the year.
“Small businesses are the lifeblood of Illinois communities across the state,” Secretary of State Alexi Giannoulias said. “It’s critical that we do everything we can to help them understand and comply with the new law.”
Many small-business owners in Illinois are confused and frustrated over the act’s rollout, Giannoulias said.
He said his office and the Department of Business Services is working on developing resources and fact sheets for business owners and will offer webinars and free training sessions.
“This is the right thing to do. We want transparency, but the instruction that we’ve received and, more importantly, small businesses have received has not been very clear,” he said. “It’s caused confusion and it’s been, unfortunately, very clunky.”
If you own a business in Illinois, here’s what you need to know to comply with the new law.
Who needs to register with the Financial Crimes Enforcement Network?
The act applies to all domestic and foreign corporations, limited liability companies and other business entities, except those included in the enforcement network’s list of 23 exemptions. Some of the exempt entities include banks, public utilities, insurance companies and large businesses — defined as a company with more than 20 employees in the U.S. with more than $5 million in gross receipts or sales.
If your company was created or registered to operate in the U.S. by filing documents with a secretary of state, and it is not covered by an exemption, you are required to file.
How do I register?
Businesses will need to file a Beneficial Ownership Information Report with the enforcement network. The form, which asks for information about each beneficial owner, can be found on the agency’s website.
A beneficial owner is someone who owns at least 25% of the company or who has “substantial control” over it — meaning a senior officer, important decision-maker or someone who can appoint and remove officers.
For each person, you’ll be asked to enter their full name, date of birth, address and a valid form of ID, such as a driver’s license or passport. If your company was created on or after Jan. 1, 2024, you also will have to report information about the person, or people, who filed the documents to create the company.
The form only needs to be filed once, unless the information that was reported must be updated.
“If there’s any change for a beneficial owner of a business — like that owner moves their personal residence, they sell one house and move to a new house — that will require that they alert the federal government,” Gardner said.
Why should I follow the requirements?
If it feels cumbersome and frustrating, you’re not alone. Gardner said many small-business owners have expressed to him that it feels like “an intrusion into privacy.” But, he said, it’s still important to take the law seriously.
Owners who don’t comply could face serious fines and other penalties. People who knowingly violate the requirements may face civil penalties of up to $500 each day the offense persists, as well as criminal penalties of up to two years’ imprisonment and a fine of up to $10,000.
Giannoulias is concerned business owners may not be aware of the new requirements, but his office is working to spread the word.
“My fear, which is based on anecdotes and just talking to business owners who don’t even know about this, is it’s going to be a very, very low percentage” who file reports, Giannoulias said.
It’s not yet clear how these penalties will be enforced, Gardner said, because proving that someone intentionally avoided compliance would be challenging.
“We don’t know for certain what the enforcement of these prescribed penalties will hold, but I don’t think anybody wants to find out and test the federal government to see what would happen if they did fail to comply,” he said.
When is the deadline to file?
If your company was created before Jan. 1, 2024, you have until Jan. 1, 2025, to file.
Any company created on or after Jan. 1 has 90 calendar days after receiving notice of its official creation.
Businesses created on or after Jan. 1, 2025, will have 30 days to file a report.
According to a senior official with the Financial Crimes Enforcement Network, thousands of companies have already filed their reports, exceeding the bureau’s expectations.
Who will be allowed access to the information reported?
Information in the report is confidential, but there are some exceptions that allow disclosure. Certain federal, state, local, tribal and foreign officials will be able to request access for purposes related to national security, intelligence and law enforcement. They will be required to provide specific reasons for why the information is necessary and relevant. With the permission of a company, financial institutions also may be able to access the information with the aim of helping customers comply with certain requirements.
Beware of scams
Gardner warned of a “big possibility for a massive scam movement.”
If you receive any emails, letters or phone calls asking you to share your information to comply with the new regulations, they most likely are fraudulent. You should not click any links or scan any QR codes. The Financial Crimes Enforcement Network does not send unsolicited requests.
The Better Business Bureau issued a warning that scammers are exploiting the new law to convince business owners to give up their personal information. You might receive legitimate-seeming messages with personal details obtained from data leaks and official-looking seals and watermarks.
If you realize you’re dealing with scammers, do not engage and report your experience to the BBB’s Scam Tracker or the FBI.
“People just have to be very, very cognizant and on the lookout for scams and phishing and other internet hacks and mailing hacks,” Giannoulias said.
