How the U.S. is playing catch up with the Corporate Transparency Act
As published in Fortune Modern Board newsletter
On paper, efforts to combat illicit activities should be seen as uncontroversial. Indeed, when the U.S. Congress passed the Anti-Money Laundering Act of 2020, it was welcomed by politicians on both sides of the aisle.
But the devil is in the details; one of the key provisions of those efforts, the Corporate Transparency Act (CTA), has proven more controversial. The CTA came into effect this past January and requires "reporting companies" (a corporation or limited liability entity that is admitted and qualified to do business in the U.S.) to submit beneficial ownership information (BOI) reports. A beneficial owner is anyone who "exercises substantial control over the reporting company" or "owns or controls at least 25% of the ownership interests."
Almost immediately, small business groups raised objections to the new law, which they viewed as a costly and unnecessary new layer of bureaucracy. The National Small Business Association sued the U.S. Treasury Department, and a federal judge ruled in their favor in March 2024-though the ruling only applies to the association and its 65,000 members. (The ruling is being appealed.)
The U.S. is one of the last major economies to institute a registry of beneficial owners. The U.K. has had a registry since 2020, as has the European Union-where most of the information is also made public, unlike in the U.S. 'This has been a long time coming, and a noted gap to play catch-up with other countries," says Ross Aronowitz, vice president of corporations and law firms for CT Corporation.
Aronowitz argues that--despite the legal uncertainties in the U.S.--every company should be preparing for the new BOI reports. For directors of large companies, the first step is conducting an audit to understand which entities need to file. "When they've done an audit, most find-whether it's a subsidiary, a minority interest, or a recently acquired company-that there are some entities that will need to comply."
Getting ready for year-end
Most companies have until January 1, 2025, to file their initial BOI reports. Currently, there are 23 exemptions to the CTA, including most businesses in the financial services sector. For companies who do need to file-especially those with complex reporting requirements-efforts are well underway to make sure they're in compliance by year's end.
Liz Rolando is senior director of the corporate secretary group at Universal Music Group (UMG), which has its corporate headquarters in the Netherlands but its operational head office in California. It is Rolando's responsibility to ensure that the many entities that UMG either owns or has a stake in are in compliance.
Rolando estimates that almost 100 UMG entities will need to file BOI reports-but because all these entities are already in a database, she hopes the process will be seamless in terms of inputting ownership information. "My goal is to get these reports out before December, since we pretty much shut down for the last two weeks of the year."
