Corporate Transparency Act (CTA)

🔹 Definition

The Corporate Transparency Act (CTA) is a U.S. federal law enacted as part of the National Defense Authorization Act for Fiscal Year 2021, designed to combat money laundering, terrorist financing, tax evasion, and other illicit activities by increasing transparency around corporate ownership. It requires certain legal entities to report information about their Beneficial Owners to the Financial Crimes Enforcement Network (FinCEN).

The CTA establishes a national database of beneficial ownership information, accessible only to authorized government agencies and financial institutions for due diligence purposes.

🔹 Frequently Asked Questions (FAQs)

Q1: Who is required to report under the CTA?
“Reporting companies” include:

• U.S. corporations, LLCs, and similar entities created by filing with a state secretary
• Foreign companies registered to do business in the U.S.
  Exemptions apply to regulated entities such as banks, credit unions, insurance companies, publicly traded companies, and large operating companies with over 20 full-time employees and more than $5 million in U.S. revenue.

Q2: What information must be reported?
Reporting companies must provide:

• Full legal name, date of birth, address, and identification (e.g., passport, driver’s license) of each beneficial owner
• Similar information for the company applicant (the person who filed the incorporation documents)
• Updates within 30 days of any change in ownership or company details

Q3: Who is considered a beneficial owner under the CTA?
A natural person who:

• Directly or indirectly owns or controls 25% or more of the ownership interests, or
• Exercises substantial control over the entity (e.g., senior officers, decision-makers)

Q4: How does the CTA affect compliance and AML obligations?
The CTA complements Customer Due Diligence (CDD) and Know Your Business (KYB) processes by:

• Enhancing the availability of beneficial ownership data for financial institutions and regulators
• Reducing reliance on self-declared information
• Supporting investigations into shell companies and illicit financial flows

Q5: When did CTA reporting requirements take effect?
The CTA’s reporting requirements came into effect on January 1, 2024.

• New entities formed on or after that date must file beneficial ownership information within 30 days of formation.
• Existing entities have until January 1, 2025 to comply.