Different types of financial crimes can result in different social consequences. For example, widespread financial fraud can serve as a deterrent to those who would otherwise consider investing in businesses. Embezzlement can harm individual businesses by putting them at a financial disadvantage, while tax evasion could lead to inadequate funding for crucial government programs.
Money laundering can lead to more financially stable and successful criminal enterprises which can become increasingly dangerous for the public or can help obfuscate the parties funding terrorist activity. In recent years, there has been increasing concern about money laundering and its impact on both organized crime and terrorist events. As a result, the federal government has recently implemented new rules that will affect businesses with the intention of significantly reducing money laundering.
What is the new policy?
In 2021, legislators in the United States passed the Corporate Transparency Act. The Act received bipartisan support and was signed into law after passing both houses. The most important requirement of the Corporate Transparency Act will go into effect on January 1st, 2024. Every incorporated business and limited liability company (LLC) will now need to file a report with the Financial Crimes Enforcement Network (FinCEN) identifying both the beneficial owners who have an interest in the company and the individual who filed the incorporation paperwork for the organization.
Existing businesses will have a year from when the law goes into effect to put together that report. New businesses formed after the first day of 2024 will have 30 days to file the necessary documentation with FinCEN. The idea is that identifying each party with an ownership interest in an organization and the person who files the paperwork to form the business with the state will help the federal government track the relationship between different entities.
The disclosure requirements will also help identify organizations run by those with ties to terrorism or organized crime. Those who help start or have an ownership interest in numerous businesses may have their information disclosed to FinCEN by the organizations that they have funded or helped to start. They could very well then find themselves facing accusations of money laundering based on their involvement with those multiple companies and the transactions that they have conducted.
Remaining compliant with new laws and understanding what behaviors might trigger a money laundering investigation could benefit those who have invested in a business or intend to do so in the near future.