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The term financial crime is defined as any activity that is fraudulent or illegal behavior for the main purposes of personal financial gain. Financial crime has been a challenge for financial institutions, companies, and individuals especially as criminals get more creative and use different methods to defraud people and institutions.
Regulators and financial authorities are keen on introducing new policies and strategies to prevent financial crime but criminals develop more sophisticated methods to evade scrutiny. The end goal of financial crime is closely tied to fraud, money laundering, and terrorism financing.
Ensuring compliance with financial regulators is important to avoid the legal ramifications such as fines and reputational risk that can affect your law firm. Having a procedure in place to deter financial crime is also beneficial because it protects the firm and the firm’s customers. This is where an entity management software will come in handy, because it keeps track, generates reports, and automates a lot of repetitive tasks.
The US Corporate Transparency Act or CTA is the ultimate beneficial ownership reporting information that is implemented by the Fin CEN which is an arm of the US Treasury. It is considered a global regulatory movement to tackle financial crimes. It should be noted that the United States is behind with CTA compliance while the rest of the G20 countries are leading the way.
The CTA was enacted into law last January 2021. By December 2022, the Fin CEN is expected to publish the final regulations and process. The final process will include guidelines regarding the means of submitting information.
The term Ultimate Beneficial Owner or UBO is very generic especially when it pertains to a US-registered entity. The definition of UBO is any individual who, directly or indirectly, through any contract, arrangement, understanding, or relationship, exercises substantial control over the entity or owns or controls not less than 25 percent of the ownership interests of the entity. All reporting companies or entities must have at least one beneficial owner.
Reporting accurate information is crucial because non-compliance with the CTA can lead to fines. Here are the different types of information that must be reported:
For companies
UBOs and Applicants
For law offices specifically, Fin CEN deems law firms as the responsible party for making decisions to form a reporting company that makes all law firm employees applicants. Existing entities will have 1 year to report following the publication of regulations at the end of 2022.
On the other hand, new entities will have 14 days to submit the report after the publication of regulations. The main difference is that existing entities will report to Fin CEN while new entities report to the Secretary of State.
The reporting does not end there, there are subsequent reports that need to be filed to comply. There are no annual reporting obligations following the initial reporting. Companies will only have 30 days to report when they have a change in beneficial ownership or control of the organization. Material change that needs to report also includes whenever beneficial owners change their name or address.
Because of the stringent guidelines and timeframes, law firms should be on top of this process to make sure that they are compliant with the rules.
Non-compliance with the reporting requirements shall be liable to the United States for a civil penalty of not more than $10,000, imprisonment for not more than 3 years, or both. Because of these penalties, it is important to keep your law firm in compliance which will enable you to minimize the reputational risk.
When it comes to corporate simplification, operationalizing compliance is beneficial because it will help with centralizing data and documents to streamline reporting. An entity management software can help with privacy data management as well as governance. By operationalizing this piece of your business, it ensures that the data is stored in one central place which makes it easily accessible.
Establishing a Compliance Committee to oversee CTA can help plan and approve policies and procedures. This business process piece can be automated which includes annual check-ins with UBOs and Applicants to collect data and make sure that the data is accurate and up to date. It also enables collaboration with different entities who are concerned with the formation, this can include law firms, accountants, and other registered agents.
Having entity management software can also aid in training teams with new processes and systems. Joint ventures and multi-national corporations may require additional processes which can be time-consuming and having software in place will provide a seamless process and keeps data in one single location.
Taking on the reporting and compliance processes is time-consuming and can eat up most of your resources. You can eliminate the stress by using entity management software that can be your centralized source to make sure that your law firm complies with CTA.
If you are looking for an entity management software for CTA, request a customized demo with a business entity management expert. Athennian can help you be on top of CTA compliance by automating data collection, reports, letters, and other documents needed. Having entity management software can also help with centralizing data and managing privacy as well as integrating with existing service providers.
"Very easy to use, modern interface, excellent support. Athennian has an amazing conversion team. They helped us migrate all of our data and the training was very good."
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“When we were reviewing other entity management systems on the market, in some cases, we were not comparing apples to apples. But with Athennian, there was really no comparison. The paralegals were so excited to come on board.”
"There are so many things I like about this program, but the one thing that really stands out is the user friendly interface. The program is fast and allows me to enter corporate information very quickly and efficiently. I would also like to note that Athennian provides the most the fantastic customer service."
