The United States strengthens its AML/CFT system

by | Jan 25, 2024 | Corporate law, News | 0 comments

The Corporate Transparency Act (“CTA”), which comes into force on January 1, 2024, establishes a register of beneficial owners similar to that in the European Union, and requires a number of reporting companies to declare their beneficial owners.

Reporting companies are divided into 2 categories: domestic reporting companies, which are national entities incorporated under the laws of a Secretary of State or similar office in the United States, and foreign reporting companies, which areforeign companies incorporated under the laws of a third country and registered to do business in the United States. The CTA does, however, list 23 types of entities that are exempt from reporting, including listed companies, companies registered with the Securities and Exchange Commission, those in highly regulated sectors (financial institutions, utilities, auditing and accounting, insurance companies, etc.), as well as certain private companies that meet the CTA’s definition of “large operating companies”.

The beneficial owner whose identity must be declared is an individual who, directly or indirectly, holds an ownership interest of at least 25% in the reporting company, or exercises substantial control over it. The terms “ownership interest” and “substantial control” are defined in the CTA.

Since January 1, 2024, beneficial owners must be declared electronically to the Financial Crimes Enforcement Network (“FinCEN”).  

Information on beneficial owners collected by FinCEN is not made public. It is accessible only to certain government agencies for law enforcement, national security or intelligence purposes, to financial institutions so that they can fulfill certain reporting obligations, to regulatory agencies that oversee financial institutions, and to the Treasury Department.

Companies subject to this reporting requirement that were created or registered before January 1, 2024 will have to file a declaration and provide the information required by January 1, 2025. Companies created or registered between January 1, 2024 and January 1, 2025 will have 90 calendar days from receipt of their notice of creation or registration to do so. Reporting companies created or registered from January 1, 2025 onwards will have to do so within 30-calendar-day period from actual or public notification of their creation or registration.

Failure to declare is subject to civil penalties of 500 dollars per day, up to a maximum total of 10,000 dollars. The deliberate provision of false or fraudulent information, as well as deliberate failure to comply, expose to criminal penalties of up to two years’ imprisonment.