In the continuing effort to combat money laundering, terrorism finance and other illegal financial activities through the use of corporate structuring, Congress has passed the Corporate Transparency Act (the CTA). The CTA requires certain defined corporate entities to provide information about their beneficial owners to the Financial Crimes Enforcement Network of the Department of the Treasury (FinCEN). Under the CTA, the Secretary of the Treasury is required to prescribe regulations putting the CTA into formal effect by no later than December 31, 2021 (the Effective Date).
A new reporting regime
The CTA requires corporations, limited liability companies, and similar entities that are formed under the laws of a state of the United States, or the laws of a foreign country that is registered to do business in the United States, to report the beneficial ownership of such entities. The CTA defines a “beneficial owner” of a company as a natural person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, (1) exercises substantial control over such company, or (2) owns 25 percent or more of such company.
Reporting companies will be required to provide the following information to FinCEN with respect to each of their “beneficial owners”:
- full legal name;
- date of birth;
- current residential or business street address; and
- unique identifying numbers from acceptable identification documents, including a U.S. passport, personal identification card or driver’s license.
These potentially burdensome reporting requirements are already causing privacy concerns, among others, for entities which have legitimate and legal purposes. As currently written, the CTA does not state precisely how such standards will be calculated or interpreted, and any company potentially within the scope of the CTA should monitor guidance from the Secretary of the Treasury as the regulation takes shape later this year.