The Corporate Transparency Act (CTA) was passed in 2021. It was created to address long-standing vulnerabilities in the U.S. financial system, where anonymous shell companies have been used to hide illicit activities. Key reasons for the CTA’s implementation include:

• Preventing Money Laundering: Criminals often use shell companies to hide their identities and launder illegal funds through the U.S. financial system. This makes it hard for law enforcement to trace the origins of illicit money​.
• Fighting Terrorism Financing: Terrorist groups and organizations have used anonymous corporate entities to move money without detection, threatening U.S. national security​​.
• Combating Tax Evasion and Corruption: Anonymous companies facilitate tax evasion and corruption by hiding the true owners of assets and income streams​. The CTA aims to close these loopholes and promote transparency.
• Aligning with International Standards: The U.S. has lagged behind other countries in requiring beneficial ownership information, which is essential for anti-money laundering and counter-terrorism efforts globally​.

By requiring companies to disclose their beneficial owners, the CTA helps prevent the misuse of legal entities for criminal purposes.

What this changes for businesses

Here's a summary of the CTA’s key points:

• Purpose: To prevent anonymous entities from being used for illegal activities, including fraud, drug trafficking, and corruption.
• Who Must File: U.S. corporations, LLCs, and similar entities must report their beneficial owners (individuals who control or own at least 25%).
• Exemptions: Some entities, like large companies (with more than 20 employees and over $5 million in revenue), publicly traded companies, and financial institutions, are exempt.
• What is Required: Companies must report the full name, birthdate, address, and ID numbers of beneficial owners.
• Due Dates:some text
  • Existing companies: By January 1, 2025
  • New companies: Within 90 days of formation, starting January 1, 2024.

The CTA aims to enhance transparency and strengthen national security by creating a central, confidential database of beneficial ownership information. This information is available only to government agencies and certain financial institutions for compliance purposes.

For more information, you can visit FinCEN​​.