US Beneficial Owner Disclosure Rule

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10 February 2021 - On January 1, 2021 the Corporate Transparency Act (“the Act”) was passed into law by incorporation into the  National Defense Authorization Act. This marks an important step in bringing the USA into compliance with international transparency standards.

New rule

The Act instructs the US Treasury Department to issue regulations that will require certain US companies (“Reporting Company”) to disclose their beneficial owners at the time of incorporation, or within 2 years from enactment for pre-existing Reporting Companies. There are several exclusion and exemptions possibilities, for example in respect to entities that are otherwise regulated. Each entity formed or registered in the US should assess applicability of these rules based on their particular circumstances.

Beneficial owner definition

A beneficial owner per the definition of the Act is any individual who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise exercises substantial control over an entity, or owns or controls 25% or more of the ownership interests of the entity. The legislation lists certain scenarios that are excluded from the beneficial owner definition.

Disclosure method and accessibility

The disclosure will be done through completion of a beneficial ownership report that will be filed with the Financial Crimes Enforcement Network (FinCEN). And will contain personal information of the beneficial owner(s) such as name, date of birth, and address.

Beneficial owner information will not be open to the public. Sharing of information by the FinCEN will only be allowed in certain circumstances that are outlined in the Act, for example on request of law enforcement agencies.  

Compliance failures

Deliberate compliance failures could result in administrative or criminal fines of up to USD 500,000 or imprisonment for up to ten years in the event of accumulated offences.

Ban on bearer shares

In addition to beneficial owner disclosure rules, the Act contains a ban on issuance of bearer shares or certificates of interest to bearer in US entities.

By Izabella Koeijers, Business Development Manager, Citco Governance Services