On January 1, 2024, the United States will implement one of the most significant changes to its corporate regulatory landscape in decades. The Corporate Transparency Act (CTA), enacted as part of the Anti-Money Laundering Act of 2020, will require millions of US entities to report their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). The implications for international entrepreneurs, corporate structuring professionals, and the broader landscape of US business formation are profound.

It has genuine strengths, real limitations, and a specific place within the broader toolkit of international structuring.

The problem the CTA addresses

For decades, the United States has been criticised — often justifiably — for allowing opaque corporate structures to be formed with minimal disclosure. In many states, an LLC or corporation could be created without identifying its true owners anywhere in the public record. The formation agent filed the paperwork. A registered agent provided the address. And the individual or individuals who actually owned and controlled the entity remained invisible.

This opacity served legitimate purposes. Many business owners preferred not to have their names and addresses in publicly searchable databases. Privacy from competitors, from litigious parties, and from identity thieves was a reasonable and lawful motivation. But the same opacity also facilitated less legitimate activities: money laundering, sanctions evasion, tax fraud, and the financing of illicit operations.

The scale of the problem was significant. A 2019 report by the Financial Action Task Force (FATF) identified the lack of beneficial ownership transparency as one of the most critical weaknesses in the US anti-money laundering regime. Multiple law enforcement investigations — including cases involving Russian oligarchs, drug cartels, and corrupt foreign officials — revealed the use of anonymous US shell companies to move and conceal illicit funds.

The international community was not silent. The European Union, which has required beneficial ownership registries since 2015, repeatedly called on the US to adopt equivalent measures. The FATF's mutual evaluation of the United States highlighted the gap as a priority for remediation.

What the CTA requires

The CTA requires most domestic and foreign-registered companies to file a Beneficial Ownership Information (BOI) report with FinCEN. The report must identify every individual who meets one of two criteria: direct or indirect ownership of 25% or more of the ownership interests of the company, or the exercise of substantial control over the company. The concept of substantial control is defined broadly.

It includes any individual who serves as a senior officer (president, CEO, CFO, general counsel, or equivalent), any individual who has authority over the appointment or removal of senior officers or a majority of the board, any individual who directs, determines, or has substantial influence over important decisions of the company, and any individual who exercises any other form of substantial control.

For each beneficial owner, the report must include: full legal name, date of birth, current residential address (not a business address or PO box), and a unique identifying number from an acceptable identification document (passport, state- issued ID, or driver's licence), along with an image of that document. For entities formed after January 1, 2024, the report must also identify the company applicant — the individual who directly files the formation documents with the state, and, if different, the individual who directs or controls the filing.

The penalties for non-compliance are substantial. Civil penalties of up to $500 per day, with no stated maximum, and criminal penalties of up to $10,000 and two years' imprisonment for wilful violations. These penalties apply to the individual who causes the failure to report, not merely to the entity itself.

Who is exempt

The CTA provides 23 categories of exemption. The most significant is for large operating companies — entities that employ more than 20 full-time employees in the United States, filed federal tax returns in the prior year reporting more than $5 million in gross receipts or sales, and have an operating presence at a physical office within the United States. All three criteria must be met. Other exemptions cover entities that are already subject to extensive federal reporting: banks, credit unions, broker-dealers, investment advisers, insurance companies, public companies, and their subsidiaries.

Tax-exempt organisations, certain pooled investment vehicles, and inactive entities (defined narrowly) are also exempt. For the vast majority of LLCs formed by international entrepreneurs — entities that typically have no US employees, limited US-source revenue, and no physical US office — no exemption applies. The BOI reporting obligation is effectively universal for this population.

Impact on international structuring

The CTA represents a paradigm shift for international clients who have historically formed US entities for the combination of legal protection and informational privacy. While the BOI database is not publicly accessible — access is restricted to federal law enforcement, national security agencies, state and local law enforcement with a court order, financial institutions with customer consent, and certain foreign authorities through treaty requests — the mere existence of a centralised database changes the landscape.

For clients from jurisdictions that have mutual legal assistance treaties (MLATs) with the United States, the CTA creates a pathway for their home country authorities to access beneficial ownership information about their US entities. This is a meaningful change from the status quo, where such information was simply not collected at the federal level. The impact on banking is also significant. Financial institutions are authorised to access the BOI database for customer due diligence purposes.

This means that the information a client provides to FinCEN must be consistent with the information provided to their bank. Inconsistencies between the two — whether in ownership percentages, controlling persons, or identification details — will trigger compliance flags. For structuring professionals, the CTA demands updated workflows. Formation processes must now include BOI collection as a standard step.

Ongoing monitoring must track changes in ownership or control that trigger update reports (due within 30 days of the change). And client communications must clearly explain the new obligations — including the potential for personal criminal liability.

The broader trend

The CTA does not exist in isolation. It is part of a global convergence toward beneficial ownership transparency. The European Union's Anti-Money Laundering Directives have required central beneficial ownership registries since 2015, with successive directives expanding public access (though a 2022 European Court of Justice ruling limited unrestricted public access). The United Kingdom's Persons of Significant Control register has been public since 2016.

Singapore, Australia, and numerous other jurisdictions have adopted or are adopting similar frameworks. The common thread is a recognition that anonymous corporate ownership is incompatible with effective anti-money laundering enforcement. Whether one agrees with this premise or not, the direction of travel is clear. The era of forming entities without identifying their owners — anywhere in the world — is drawing to a close.

At Fidelys Partners, we have incorporated CTA compliance into our standard formation and administration processes. For existing client entities, we are proactively collecting and verifying beneficial ownership information to ensure timely filing. For new formations, BOI reporting is integrated from the first engagement. Compliance is not a burden to be managed after the fact. It is a design requirement to be built in from the beginning.

— Fidelys Partners —