The Corporate Transparency Act (CTA) is a U.S. law passed in 2021 to improve transparency around company ownership and reduce the misuse of shell companies for illicit financial activity. It requires certain corporations, limited liability companies (LLCs), and other entities to file Beneficial Ownership Information (BOI) reports with the Financial Crimes Enforcement Network (FinCEN).

The law aims to make it harder for criminals to hide illicit funds through anonymous company structures and strengthens the U.S. framework against money laundering, terrorist financing, and financial crime.

Regulators such as FinCEN and the U.S. Department of the Treasury emphasise the CTA’s importance as part of broader AML reforms.

Definition Of The Corporate Transparency Act

The Corporate Transparency Act (CTA) is a U.S. federal law that requires certain businesses to disclose the details of their beneficial owners to FinCEN.

This definition is important because it highlights the law’s focus on identifying real individuals behind companies, ensuring that regulators and investigators can trace illicit funds back to their source.

• Who Must Report: Corporations, LLCs, and similar entities formed or registered in the U.S.

• Who Is Exempt: Larger firms (with more than 20 full-time U.S. employees and over $5M in revenue), banks, insurers, and regulated investment companies.

• What’s Reported: The name, date of birth, address, and government ID number of beneficial owners with significant ownership or control.

• Purpose: Preventing illicit funds from flowing through shell companies.

Why The CTA Matters For AML And Financial Compliance

The CTA matters because it closes a long-standing loophole in the U.S. financial system: the ability to hide behind anonymous shell companies.

For regulators and compliance teams, it creates greater transparency into who is behind corporate structures, improving the fight against financial crime.

• Reduces Shell Company Abuse: Prevents criminals from using anonymous entities to launder money.

• Supports Law Enforcement: Provides investigators with access to beneficial ownership information.

• Strengthens AML Frameworks: Brings the U.S. closer to international standards set by the FATF.

• Protects The Financial System: Helps prevent corruption, tax evasion, and terrorist financing.

Compliance Obligations Under The CTA

Compliance with the CTA means companies must understand whether they are subject to reporting rules, what information they must collect, and when it must be submitted. For many smaller entities, this is a significant new regulatory obligation.

Covered Entities

Most smaller and privately held companies formed or registered to do business in the U.S. must comply.

Reporting Requirements

Beneficial Ownership Information (BOI) reports must include full legal names, addresses, and ID documentation for qualifying owners.

Deadlines

• New Entities (formed after Jan 1, 2024): Must report within 30 days.

• Existing Entities (formed before 2024): Have until Jan 1, 2025, to file.

Penalties

Failure to report or knowingly filing false information can result in fines and criminal liability.

Challenges Companies Face With CTA Compliance

While the CTA increases transparency, it also introduces operational and compliance challenges for businesses.

Companies must ensure they have processes in place to identify, verify, and maintain accurate beneficial ownership data.

• Complex Ownership Structures: Multi-layered ownership can make identifying beneficial owners difficult.

• Administrative Burden: Collecting and verifying ownership information adds compliance costs.

• Ongoing Updates: Companies must keep ownership records current and file updates promptly.

• Alignment With AML Programs: Financial institutions will need to factor CTA data into their risk-based approaches.

The CTA In The Bigger Picture Of AML

The Corporate Transparency Act is not an isolated law. It fits into the wider anti-money laundering framework by ensuring companies cannot easily be used as vehicles for hiding illicit funds. For financial institutions, the CTA provides more reliable ownership data that complements customer screening, payment screening, and transaction monitoring at the fiat level.

Strengthen Your AML Compliance Framework

The CTA makes company ownership more transparent, but it does not remove the need for financial institutions to maintain strong AML systems. Firms still need robust processes to screen customers, monitor payments, and detect suspicious transactions.

Facctum supports institutions with; FacctShield, Payment Screening, FacctView, Customer Screening, FacctList, Watchlist Management, and Alert Adjudication ensuring AML compliance is effective at the fiat layer where oversight is most critical.

Contact Us Today To Strengthen Your AML Compliance Framework