US Corporate Transparency Act includes compliance requirements for international companies

The US Corporate Transparency Act went into effect in January 2024, and firms with operations in the United States must comply or face severe penalties.

Traditionally, the US government has taken a privacy-centric approach to corporate ownership and management. Until recently, there was no easy way for the government to determine who owned a company.

The US Congress ultimately decided this approach allowed too much money laundering and criminal concealment, and passed the Corporate Transparency Act (CTA) into law. Under the CTA, if a company registers to do business in the United States on or after 01 January 2024, it is obliged to file a Beneficial Owner Information Report (BOIR) within 90 days of the registration coming into effect. For any entity so registered prior to 01 January 2024, the BOIR is due 31 December 2024. Failure to file the BOIR will result in fines of up to USD 10,000, plus up to two years in prison.

The BOIR contains information about all people who own at least 25% of the entity (with a broad definition of what it means to own), or who exercise substantial control over the entity (i.e. senior officers, managers, and the like). From each of these ‘beneficial owners,’ a copy of each beneficial owner’s passport will be submitted with the BOIR. The BOIR also must disclose the people who actually submitted the registration (i.e. ‘company applicants’) if registration occurred on or after 01 January 2024. This could be a lawyer and/or a paralegal. 

BOIRs are filed electronically through the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN). One positive aspect of CTA is that BOIRs are not released publicly. They are available only to law enforcement and taxing authorities. 

There are exemptions, both for companies and beneficial owners. Most notably, a ‘large operating company’ (requires more than 20 employees, has a physical office in the United States, and with over USD 5 million in revenue) is exempt. With respect to beneficial owners, minor children, inheritors, creditors, and custodians are exempt. 

For example, London-based recruitment company Big Ben Ltd. registers to do business in the US state of Texas on 29 December 2023. The BOIR is due 31 December 2024. If, on the other hand, that registration was instead effective on 04 January 2024, the BOIR would be due 03 April 2024 (90 days after registration). Suppose that Big Ben Ltd. is owned by Barack Trump (80%) and George W. Biden (20%), and managed by Abraham Clinton. Trump would be a beneficial owner based on his ownership of more than 25%, and Clinton would be a beneficial owner based on his management position. If Clinton engaged the Cleveland law firm of Cavitch, via its lawyer Michael Rasor and paralegal Rachel Zane, then both Rasor and Zane would be company applicants.

The federal government estimates a cost of USD 2,000 per entity where the structure is complex; for most entities, the compliance cost will not exceed USD 500. The biggest risk about CTA is ignoring it altogether.