Increasing global focus on money laundering, terrorist financing, and tax fraud has led to a raft of international transparency regimes.
In the UK, the Persons with Significant Control regime is now in its eighth year of operation and complements tax transparency initiatives such as the Common Reporting Standard. Over across the pond, the Corporate Transparency Act (CTA) will, from 1 January 2024, require certain entities to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of the Treasury.
The CTA requirements were enacted as part of the National Defense Authorization Act of 2020 to combat corruption, money laundering, and terrorism financing by forcing disclosure of the identity of the natural person who controls or owns a corporate entity. Non-US charities with connections to the United States may well wonder if this newest transparency initiative may implicate them or their affiliates.
The reporting requirement and its exemptions
The CTA applies broadly to entities formed or operating in the US. US-formed corporations, partnerships and limited liability companies, as well as non-US entities registered to do business in any part of the United States will be required to report certain information about their beneficial owners.
While the CTA broadly defines a “reporting company”, it also helpfully includes 23 exemptions. Most relevant for non-profits, the CTA has an exemption for organizations described in Section 501(c) of the US tax code ('IRC') and their subsidiaries, as well as charitable or split interest trusts.
A US entity described in IRC Section 501(c) will be exempt. This includes charitable organizations (including US public charities and private foundations), schools, religious organizations, social welfare organizations, labor organizations, trade associations, chambers of commerce, and social clubs. A word of caution however – a US charity that is described in Section 501(c)3 that loses its tax-exempt status, for instance under the Pension Protection Act of 2006 by failing to comply with reporting obligations, could be implicated under the CTA.
Impact on non-US charities
UK and other non-US charities are frequently affiliated to US 501(c)3 organizations, whether in a 'friends of' arrangement or in another type of operating affiliation. The good news is that such US affiliates will be able to enjoy the above exemption provided they are entities described in IRC Section 501(c). Likewise, a US entity that forms part of a US/UK or US/Hong Kong dual qualified structure will also be exempt on this basis. Additionally, any wholly owned subsidiaries of US entities qualifying for the 501(c) exemption should be exempt as well.
However, some UK and other non-US charities may be registered to do business in a US state, either directly, or through a non-charitable US subsidiary. In such cases, reporting may be required if no other exemption applies.
Timing
The CTA has retroactive effect. Reporting companies created or registered before January 1, 2024, will have one year—until January 1, 2025—to file their disclosures with FinCEN. Reporting companies created or registered after January 1, 2024, will have 30 days after receiving notice of their creation or registration to comply (FinCEN has proposed extending the deadline to 90 days).
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