The imposition of U.S. sanctions give U.S. business owners a need to focus on their CTA compliance. Volodymyr Zelenskyy's media-savvy compliance, have focused public attention on the role sanctions will play in weakening Russia's war economy.
CTA Compliance Database
The CTA (or Corporate Transparency Act) is a law adopted in 2020, but not yet implemented, that will require U.S. companies to track their beneficial ownership. U.S. companies will need to file a report with FinCEN, the U.S. Treasury's Financial Crimes Enforcement Network, that identifies every beneficial owner of the company.
FinCEN will maintain a database of beneficial ownership that it will make available to U.S. law enforcement agencies. U.S. law enforcement could soon use that database to enforce country-wide sanction programs.
U.S. Russia Sanctions
The U.S. has imposed a variety of sanctions on Russia and key Russian supporters of the Putin administration. Most sanction programs prohibit transactions between U.S. companies and individuals and specified Russians. 31 CFR Part 587 outlines some of the steps that the U.S. Treasury will take to identify specific Russians and block their accounts and ability to access funds in the U.S. The Office of Foreign Asset Control (OFAC) of the U.S. Treasury has added many names to its list of Specially Designated Nationals (SDNs).
The heart of the U.S. sanctions regime prohibits U.S. companies and individuals from engaging in any transaction with a person on the SDN list.
To comply with Russia sanctions, U.S. companies and managers should maintain accurate and current capitalization tables. Doing so will enable them to know the identity and nationality of their investors. Knowing investors will often require U.S. companies to look beyond investor holding companies. U.S. companies will need to know the individuals who have ultimate beneficial ownership. As a result, they should know the individual persons involved, and not just the names of the investing companies.
Once implemented, the CTA will require U.S. companies to identify each beneficial owner, including their full legal name, date of birth and home address. The U.S. company will provide this information to FinCEN it a beneficial ownership report. After an initial report, the U.S. company will need to amend its report within 30 days after any change in previously-reported data. Eventually, FinCEN's database of U.S. company owners will become part of the government's sanctions toolkit. It will allow the government quickly to identify U.S. companies that are owned by sanctioned individuals.
First Steps Towards CTA Compliance
U.S. companies and their managers would be wise to start complying now. At a minimum, U.S. companies should ensure that their capitalization tables are current. U.S. companies should ensure that they have corporate governance rules in place that compel their investors to disclose the natural persons who have ultimate ownership over them.