Folded into the 2021 National Defense Authorization Act (NDAA), the annual defense spending bill that Congress passed on January 1, 2021, is the Corporate Transparency Act (CTA). The CTA is the first major anti-money laundering law enacted in 20 years in the United States. 

The aim of the CTA is to ban the anonymous shell companies that criminals and some foreign officials use to hide corrupt practices, proceeds, and other illegal financing. The CTA requires all U.S. businesses to file information about “beneficial ownership” with the Financial Crimes Enforcement Network (FinCEN), a bureau within the U.S. Treasury Department. The law applies to U.S. and non-U.S. companies registered to operate in the U.S. that fall within the definition of a “reporting company.”  

Reporting Company: Who is subject to the CTA?

The CTA has a broad definition of a “reporting company” that may be subject to the CTA. The CTA defines “reporting company” as a corporation, limited liability company, or similar entity that is:

  • Created by the filing of a document with the secretary of state or a similar office under the law of a U.S. state; or
  • Formed under the law of a non-U.S. country and registered to do business in the U.S. by the filing of a document with a secretary of state or a similar office under the laws of a U.S. state.

The CTA specifically carves out from its definition of a “reporting company” those entities that are already subject to other anti-money laundering laws or regulations. Among the entities that are carved out from the CTA’s requirements are any entity that:

  • Employs more than 20 full-time employees in the U.S.;
  • Filed a federal return that reported more than $5 million in gross receipts or sales (including by subsidiaries and affiliates); and
  • Has a physical operating office in the U.S.
 
Beneficial Owner: What information must be reported?

The CTA contains certain reporting requirements, including that companies file a report that provides the name, date of birth, current address, and unique identification number (e.g. driver’s license or passport number) of the company’s “beneficial owner” to FinCEN. The information must be updated annually to reflect any changes.
  
A “beneficial owner” is an individual who, directly or indirectly, through any contract, arrangement, understanding, or otherwise:

  • Exercises substantial control over an entity; or
  • Owns or controls at least 25% of the ownership interests in an entity.

The CTA excludes certain individuals from the “beneficial owner” definition, including:

  • Those acting as agents, intermediaries, or custodians on behalf of another person;
  • An employee of a reporting company whose control or economic benefit with respect to the entity is derived solely from their employment; and
  • Creditors of the reporting company (unless the creditor meets either the “substantial control” prong or owns or controls 25% or more of the reporting company).