Article
The corporate transparency act: Top five considerations for foreign investors
May 18, 2023 · Authored by Brittain Cunningham
The Corporate Transparency Act (CTA) was signed into law in January 2021, and in September 2022, the Financial Crimes Enforcement Network (FinCEN) issued highly anticipated final rules implementing the beneficial ownership reporting requirements of the CTA.
The CTA may have significant implications for U.S. companies and foreign investors. Foreign investors should carefully consider the following when planning their investments in the United States:
- Reporting requirements
- Effective dates
- Penalties for noncompliance
- Privacy concerns
- Process for obtaining an identification number
What Is the Corporate Transparency Act?
The CTA is a piece of legislation enacted as part of the National Defense Authorization Act (NDAA) that requires the reporting of information to the U.S. government regarding individuals who are the beneficial owners of certain types of domestic and foreign legal entities.
Beneficial ownership refers to the individuals who own or control an entity, either directly or indirectly, which includes individuals who own 25% or more of the company, or any individuals who exercise substantial control over the entity.
The United States has been grappling with the issue of beneficial ownership transparency for years. Historically, it had been considered a haven because there weren’t requirements to disclose the identity of beneficial owners to the U.S. government.
The CTA intended to bring the U.S. into compliance with international standards regarding Anti-Money Laundering (AML) and Combatting the Financing of Terrorism (CFT). The law is modeled after similar legislation passed in Europe, such as the European Union’s (EU’s) Fifth Anti-Money Laundering Directive, which requires EU member states to establish centralized beneficial ownership registers for companies operating within their borders.
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