Compliance

Corporate Beneficial Ownership Disclosure Is Getting Closer

Tom Burroughes Group Editor 13 November 2023

Corporate Beneficial Ownership Disclosure Is Getting Closer

Less than two months away, a new legal requirement on US corporates kicks in, requiring firms to say who their ultimate beneficial owners are. There's been a trend worldwide for such disclosure – although not without legal pushback and concerns about legitimate privacy.

Most US firms face a new compliance task from the start of next year – identifying who their beneficial owners are. The measure, taking force from January 1, is called the Corporate Transparency Act.

The data will be sent to the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of the Treasury. 

The legislation has been rolled out to tighten screws on money launderers, handlers of terrorism finance, and tax fraudsters. As geopolitical crises continue, such as in Ukraine and Israel, the need to tighten controls is underscored. In some ways, the legislation is parallel with moves by the UK, for example, to push for beneficial ownership disclosure information in companies registered in the country and in offshore centers linked to it, such as the Cayman Islands. On the flipside, moves to push for public registers of beneficial ownership of companies and trusts, such as in the European Union, have been legally challenged for compromising legitimate privacy

Accountants and professional services firms point out that the Act applies to US-formed corporations and limited liability companies along with certain foreign-owned entities doing business in the States. Many sole practitioners, small businesses and middle-market businesses will be required to file ownership reports.

The report requires companies to provide information on any individual who, directly or indirectly, exercises substantial control over the company, owns or controls at least 25 per cent of its ownership interests.  

Final rules implementing the Act will become effective on January 1, 2024. Reporting companies formed prior to that date will have one year to complete and submit initial reports. Reporting companies formed on or after that date must promptly submit initial reports to FinCEN. Failure to comply with these requirements may result in civil or criminal penalties.

According to a briefing note from Katten, a reporting company is any domestic entity (whether a corporation, limited liability company or otherwise) that is created by the filing of a document with a US state (or any commonwealth, territory or possession of the United States) or any foreign entity that registers to do business in the US by making a filing with a US state (or any commonwealth, territory or possession of the US). 

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