Your New U.S. Beneficial Ownership Reporting Obligations! (or, “What took you so long, Washington?”)

As of January 1, 2024, the U.S. Corporate Transparency Act (CTA) requires the reporting of information about a company’s “beneficial owners” to the U.S. Treasury’s Financial Crimes Enforcement Network. (A company’s “beneficial owner” is an individual with substantial ownership interests and/or control.)

The CTA is a strong anti-money laundering statute designed to combat illegitimate financial activity and promote transparency. But…innovative? Hardly.

The U.S. has not demonstrated strong leadership in this area: according to www.openownership.org, over 80 countries maintained a live beneficial ownership register by the time the U.S. implemented its own. Further, most U.S. states do not require reporting of equity registers (or any public updating of equity ownership).

As in most areas, transparency reduces corruption by shining the light on tax evasion, sanctions evasion, money laundering, political malfeasance, and other national and cross-border financial crimes. Why? Because anonymity is the friend of corruption: a study by The World Bank found that over 70% of major corruption cases “include the use of anonymous companies to move financial assets undetected and without a trace of the true owner.”

As in every regulation, “the Devil is in the details.” Not all companies have the requisite U.S. nexus, and others may enjoy one of 23 statutory exceptions to reporting obligations. However, most companies with a U.S. presence will need to comply by January 1, 2025.

Noncompliance can result in severe penalties:

· Late filings are subject to a US$500/day fine

· Willful failure to comply can result in a fine of up to US$10,000 and/or up to two (2) years imprisonment

· Criminal violations can lead to a fine of up to US$250,000 and/or up to five (5) years imprisonment, with the possibility of enhanced penalties for certain aggravating circumstances

The CTA clearly fosters transparency and accountability and aims to deter unlawful financial activities. We should applaud the U.S. for, however belatedly, joining the fight.

Josh Wallenstein

Managing Member, The Wallenstein Law Group. P.C.