{"id":17930,"date":"2021-10-13T06:00:50","date_gmt":"2021-10-13T13:00:50","guid":{"rendered":"https:\/\/www.trulioo.com\/?p=17930"},"modified":"2023-08-14T22:51:21","modified_gmt":"2023-08-14T22:51:21","slug":"corporate-transparency-act","status":"publish","type":"post","link":"https:\/\/www.trulioo.com\/blog\/business-verification\/corporate-transparency-act","title":{"rendered":"Corporate Transparency Act \u2014 a new era in U.S. beneficial ownership disclosure"},"content":{"rendered":"\n

Once the\u00a0Corporate Transparency Act<\/a> (CTA)\u00a0comes into effect, U.S. companies will have to report their\u00a0Ultimate Beneficial Owner<\/a>\u00a0(UBO) information to the Financial Crimes Enforcement Network (FinCEN). As of January 1, 2024, any new incorporation or significant UBO change will need to be reported and any company formed before then will have one year to report.<\/p>\n\n\n\n

The use of anonymous shell companies, complex ownership structures that often make it difficult to identify true company ownership, has long been one of the critical weaknesses of Anti-Money Laundering<\/a> efforts in the U.S. In its 2016 Mutual Evaluation Report (MER) of the U.S. government\u2019s AML\/CFT program, the Financial Action Task Force (FATF) noted that the \u201clack of timely access to accurate beneficial ownership information remains one of the most fundamental gaps in the U.S. context.\u201d<\/p>\n\n\n\n

Many states have no requirements for collecting beneficial ownership information. For example, incorporating in Delaware<\/a> allows companies to form quickly, inexpensively and with no identity requirements. As a result, numerous shell companies were formed there, further resulting in many financial crime investigations. The federal Corporate Transparency Act will overlay all state-based UBO reporting obligations.<\/p>\n\n\n\n

While regulated entities in the U.S. have had to identify and verify the identity of the beneficial owners of business customers at the time a new account is opened, as per the Financial Crimes Enforcement Network (FinCEN) Final Rule<\/a>, it is now the responsibility of the entity itself to provide the beneficial ownership information.<\/p>\n\n\n\n

U.S. UBO reporting requirements<\/h2>\n\n\n\n

When considering the FATF\u2019s Best Practices on Beneficial Ownership for Legal Persons<\/a>, the Corporate Transparency Act is best categorized as a registry approach. Each reporting company will need to provide FinCEN with four pieces of information:<\/p>\n\n\n\n

(i) A beneficial owner\u2019s full legal name<\/p>\n\n\n\n

(ii) A beneficial owner\u2019s date of birth<\/p>\n\n\n\n

(iii) A beneficial owner\u2019s current residential or business street address<\/p>\n\n\n\n

(iv) A government-issued identifying number assigned to that beneficial owner from an acceptable identification document (such as passport, driver\u2019s license or other U.S. state-issued identification document).<\/p>\n\n\n\n

It\u2019s important to note that the registry will not be publicly available, but the information will be available to law enforcement or financial institutions (with customer consent).<\/p>\n\n\n\n

According to a National Law Review article, \u201cCustomer Due Diligence requirements<\/a> for financial institutions will be updated to conform to the requirements of the Act and to take into account access by financial institutions to the information compiled under the Act.\u201d The fact that this UBO information is available to financial institutions implies that the checking and confirmation of UBO registry information will become a necessity for reporting companies. But not all companies will be required to report their UBO information to FinCEN. Exemptions include:<\/p>\n\n\n\n