In January 2021, the United States enacted a landmark legislation – the Corporate Transparency Act (CTA), tucked within the National Defense Authorization Act for the Fiscal Year 2021. The Act aims to reduce the use of shell companies for illicit purposes by requiring greater transparency of US companies’ ownership structures.
The CTA demands all “reporting companies” to disclose certain specifics about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). The disclosure comprises reporting the full legal names, birth dates, current addresses, and a unique identification number from a non-expired US passport, state-level driver’s license or identity document for non-US individuals of each beneficial owner.
Exceptions to the CTA include larger entities, those with over 20 full-time US-based employees, with annual revenues exceeding $5 million and with an operating presence at a physical office within the US, or entities in good standing under the laws of a foreign country.
In addition, firms already under Federal oversight such as banks, credit unions, registered entities, registered investment companies, and registered securities exchanges are exempted. The Act also excludes churches, charities and other non-profit entities from its coverage.
Compliance with the CTA will impose new reporting obligations on small businesses and foreign companies doing business in the U.S. Non-compliance could lead to civil and criminal fines up to $500 per day up to $10,000 and imprisonment for up to two years.
Thus, successful CTA enactment will rely heavily on corporations’ adaptability to comply with these new regulations, and regulators’ ability to enforce them. It is a significant piece of legislation that will greatly assist in curtailing illicit financial activities but demands heightened diligence from businesses.