New Beneficial Ownership Disclosure requirements in the United States

Recently the Corporate Transparency Act of 2019 (the “CTA”) was passed in the U.S. The CTA mandates companies registered in the US to disclose their beneficial owners to the Financial Crimes Enforcement Network of the US Treasury (“FinCEN”). Since the CTA is part of the newly enacted Anti-Money Laundering Act (“AMLA”), the primary motive is to fight money laundering and terrorism through the anonymous use of shell companies.

1. Who will need to disclose ownership information?

Only a “reporting company” can disclose its beneficial ownership. As per CTA’s definition a “reporting company” includes “a corporation, limited liability company, or other similar entity” in the US, as well as similar entities formed abroad and registered to do business in the US. 

2. Who is a “beneficial owner” under CTA?

As per the CTA, a “beneficial owner” is any natural person who owns at least 25% of the equity interests (directly or indirectly) in a reporting company or exercises “substantial control” over the reporting company. However the term “substantial control.” has not been defined.

Following individuals are expressly excluded from the definition of “beneficial owner,” 

  •  individuals acting as nominees, agents, intermediaries, or custodians on behalf of another;
  • individuals who control an entity solely due to their employment; and
  • individuals whose only interest in a reporting company is via their right of inheritance. 

3. Who are excluded from reporting requirements? 

The reporting requirements will not apply to 

  • Publicly traded companies, certain regulated companies and companies that have already provided this information to a government agency
  • Tax-exempt entities 
  • Operating companies (those with 20 or more full-time employees; at least $5,000,000 in sales revenue; and an operating presence at an actual physical location in the U.S.) and their subsidiaries 
  • Also, a company that has been in existence for over one year; not owned, directly or indirectly, by a foreign person; has not, during the preceding 12-month period, experienced any change in ownership or sent/received funds greater than $1,000, not engaged in active business; and does not otherwise hold any asset, including an ownership interest in any corporation or LLC.

4. What will need to be disclosed?

Under the new law, businesses will be required to report the name, date of birth, current address, and unique identification number of the individuals who own, directly or indirectly, at least 25% of the company or who otherwise control the company. 

5. When will disclosure must be made?

The disclosure must be made once the final regulations under the CTA will become effective, which is expected before January 1, 2022. Existing Companies as of the effective date of the CTA’s implementing regulations will be required to report beneficial ownership information within two years; 

Whereas companies created after the effective date of CTA’s regulations will be required to report immediately upon formation. 

6. To whom disclosures must be made? 

Beneficial ownership information must be reported to the Financial Crimes Enforcement Network of the US Treasury (FinCEN), which is the only permitted authority to use that information for anti-money laundering and limited national security purposes.

7. Are there penalties for non-disclosure?

Any person who wilfully fails to report complete beneficial ownership information to FinCEN or who wilfully provides fraudulent or false information in any such report is subject to a 

  • A civil penalty of up to $500 per day till the violation continues, and 
  • Criminal penalties up to $10,000 and/or imprisonment for up to two years.

Impact of the new law 

The CTA is going to have significant implications for foreign and domestic US businesses. As a result of the new law, it will not be possible to keep the identities of the individuals who own and control US business entities totally anonymous any longer.

If you have any query about the new law or any other query in relation to doing business in the US, then do contact us at info@d-b-in.com

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