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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 has 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 their beneficial owners. The measure,
taking force from 1 January, 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 has been underscored. The new measures
are, in some ways, parallel with moves by the UK, for example, to
push for beneficial ownership disclosure information on companies
registered in the country and in offshore centres linked to it,
such as the Cayman Islands. On the flipside, the 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 also 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 1
January, 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 law firm 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).
See
here for an editorial by this news service on the
beneficial ownership issue.
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