As part of the National Defense Authorization Act of 2021 Congress adopted the Corporate Transparency Act (or "CTA"). The CTA includes some of the most significant changes to US anti-money laundering ("AML") laws in recent years.
Despite an EU-wide mandate known as the Fifth Anti-Money Laundering Directive ("5AMLD"), however, EU member states remain inconsistent. Although 5AMLD requires member states to adopt laws to require disclosures from private companies, member states have not yet adopted uniform rules.
Beneficial Ownership RulesIn the U.S., the CTA requires corporations, partnerships, limited liability companies and other businesses to file a report that discloses their beneficial ownership. Before the CTA it was possible to form most companies without publicly disclosing the owners of the entity. The CTA will end that practice and will compel most companies disclose their ownership.The new law will require non-exempt entities to file a report with FinCEN, the Financial Crime Enforcement Network, an agency of the U.S. Treasury Department.
The CTA requires the Treasury Department to issue regulations by January, 2022 that will require corporations, partnerships, limited liability companies and similar entities formed or registered to do business in the United States ("covered entities") to report and verify the identity of their beneficial owners to FinCEN at the time of their formation and within a year of any changes to their beneficial ownership. The law gives existing covered entities no more than two years from the effective date of the regulations to submit reports on their beneficial owners. New covered entities must report at the time of formation or registration after the effective date of the regulations.
The CTA defines "beneficial owner" to include any individual, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise who:
1. Exercises substantial control over the covered entity, or
2. Holds at least 25 percent of the ownership interests of the covered entity.
In the EU, the laws of the member states require different levels of disclosure. In the U.S. system, beneficial reporting under the CTA is focused on shell companies and privately owned entities. The CTA exempts publicly-traded companies, banks, and most companies that are subject to some form of regulatory supervision.
In contrast, the EU rules require all companies to report their beneficial ownership.
Access to Data in Europe and U.S.
A second point of contrast is how accessible the beneficial reporting data is to the public. In the U.S., the CTA requires that beneficial ownership data be kept in confidence by FinCEN. Only a handful of regulatory agencies may access the data, and then only for permitted regulatory and law enforcement purposes.
In contrast, the EU system under 5AMLD requires that all beneficial ownership data be accessible by the public. It has not been uniformly implemented that way, but the EU mandate requires it.
FinCEN will have access to and will maintain reportable information, and can only disclose information upon receipt of an appropriate request from a U.S. federal law enforcement, national security or intelligence agency; a U.S. nonfederal law enforcement agency if a court has authorized such agency to seek the information in a criminal or civil investigation; a financial institution subject to customer due diligence requirements to facilitate its compliance obligations; or to certain federal regulatory agencies.