On January 1, 2021, the U.S. Congress passed the National Defense Authorization Act that also included the Corporate Transparency Act (the “Act”). The Act follows the intent to eradicate threats to U.S. national security interests, such as money laundering, terrorism financing and tax evasion. It will require newly created and existing corporate entities to disclose information regarding its beneficial owners. The U.S. Treasury Department has one year to issue regulations implementing the Act.
Until now, requirements for beneficial ownership disclosure were determined by the state of incorporation. For example, Delaware, where most of companies are incorporated, demands very little disclosure regarding the actual owners of corporations. This regulatory environment made it easy to create layers of shell companies across multiple jurisdictions, thus effectively concealing the actual ownership information. The goal of the Act is to create a federal standard for beneficial ownership disclosure requirements for U.S. corporations and limited liability companies, as well as foreign entities that register to do business in the U.S. The Act does not require disclosure from entities (1) employing more than 20 full time employees, (2) that filed U.S. income tax returns showing in excess of $5mm in gross receipts or sales, (3) operating in a physical office, and certain other entities.
For the purposes of the Act, a beneficial owner is an individual, who directly or indirectly (1) exercises substantial control over the entity, or (2) owns more than 25% of its equity. The disclosures, including also the personal information of each beneficial owner (such as name, birth date, address, a U.S. passport or driving license number), will not be publicly available, but will be provided to Federal or state agencies, as well as to financial institutions for the purposes of compliance with customer due diligence obligations, provided that the customer agreed to grant access to such information to the financial institution.
Willful non-compliance with the Act will be punished by significant civil and criminal penalties.