For decades, businesses created in the United States did not face any obligations to share information about their shareholders and beneficial owners. A lack of accountability in this aspect may not look like a big deal, but it has led to many legal issues over the years.
A lack of transparency in the said aspect has led anonymous business owners to create shell companies that enable them to disguise illicit funds and give control to anonymous shareholders. Looking at these activities, Congress legalized the collection of beneficial ownership information.
Many people are still unsure about the formation of this act. Here are the top five objectives served by this act to help you better understand its purpose.
As mentioned above, there was not a lot of information required by companies about the names of their shareholders or Ultimate Beneficial Owners (UBOs). This seemingly innocent void led to a lot of problems and illicit activities.
FinCEN introduced the Customer Due Diligence (CDD) rule in 2016 that extended obligations to certain financial institutions. The US Congress held more hearings over transparency issues that led to a path for the development of Corporate Act filing.
Prevention of Illicit Activities
From money laundering to tax evasion, there are many illicit activities that the US government deals with due to a lack of information and credibility. Such problems can lead to Congress looking into the need for an up-to-date policy on the basis of concrete data.
The advent of the Corporate Transparency Act (CTA) has ensured transparency among business entities and corporations. It aims to combat illicit financial activities such as money laundering, tax evasion, terrorist financing, and the opening of shell organizations.
Better Data Collection
According to the FinCEN Beneficial Ownership Information (BOI), the goal of CTA is to improve transparency and accountability of corporate structures to decrease illicit activities such as tax evasion and the formation of shell organizations.
The Corporate Transparency Act has opened new doors of possibilities to enhance the accountability of business owners and shareholders. It enhances the accuracy of BOI and facilitates the following enforcement efforts and criminal investigations.
Since there were no rigid reporting requirements, businesses found it very challenging to get in line with the requirements for FinCEN, if any. However, CTA is expected to make these challenges easier by simplifying and streamlining the process for entities to comply.
The reporting requirements are easier than ever before with CTA. It also aims to maintain data security and privacy for business entities.
Enhance National Security
The processes and purpose of CTA are not limited to holding businesses financially accountable for every step they take. This act is bigger than maintaining data security and privacy. It can also help streamline the processes of national security.
CTA can enhance accountability and help the government in identifying and tracking entities with opaque ownership to see if they pose a risk to national security. If yes, then they can take the needed actions accordingly.