The federal government is cracking down on those who exploit anonymous shell corporations, front companies, and other loopholes to hide ownership of small businesses and their beneficial owners. While meant to deter crimes, such as corruption, drug and arms trafficking, the law will also result in a lack of anonymity for investors in film projects. The Anti-Money Laundering Act of 2020 includes the Corporate Transparency Act (CTA), which became effective with Congress’ override of former President Trump’s veto on January 1, 2021.
The United States did not have a centralized aggregation of information about who owns and operates legal entities within the United States. The CTA requires certain companies to disclose its beneficial owners to the United States Treasury’s Financial Crimes Enforcement Network (“FinCEN”). Reporting companies will include corporations, LLCs, limited partnerships, and similar entities, which are created by filing documents with any Secretary of State’s office.
There are almost two dozen types of exempt entities which do not need to submit a beneficial owner report to FinCEN because they are already closely regulated, such as publicly traded companies, governmental entities, banks, credit unions, securities broker/dealers, other SEC regulated entities, insurance companies, charities, and certain grandfathered private businesses.
On December 7, 2021, FinCEN issued proposed rules to implement the beneficial ownership information reporting provisions of the CTA. The comment period on the proposed rules is open until February 7, 2022. Under the proposed rule, a beneficial owner would include any individual who (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company.