Complying with the New Beneficial Ownership Reporting Requirements

The Corporate Transparency Act, also known as the CTA, is a law that was passed on January 1, 2021 as part of the National Defense Authorization Act (NDAA). It is part of the Anti-Money Laundering Act (AMLA) of 2020 and aims to guard against money laundering, terrorism financing, and other illicit activities by requiring certain companies to report accurate and up-to-date beneficial ownership information to the US government. 

The CTA largely applies to foreign-owned shell companies, but domestic companies should also ensure that they fall within one of the exceptions to the definition of a reporting company. 

The Final Rule also exempts 23 types of entities from the definition of “reporting company,” including SEC reporting companies, banks and credit unions, tax exempt entities, broker-dealers, investment companies and their advisors, and companies that (a) have 20 or more full-time employees in the U.S., (b) have an operating presence through a physical office in the U.S., and (c) filed a federal income tax or an information return showing more than $5 million in gross receipts or sales in the prior year. 

Violators are subject to potential civil penalties of up to $500 for every day of a violation, and criminal penalties including up to two years of imprisonment. Each person filing a report must certify that the report is accurate and complete.

The CTA’s reporting requirements represent a significant change in the formation of corporations and keeping track of changes may prove to be a challenge for some companies.

Automated Beneficial Ownership Reporting With XDEX

XDEX automates beneficial ownership accounting and calculation for even the most complex corporate ownership structures. 

The XDEX ecosystem can embed beneficial ownership checks and calculations into secondary market infrastructure to enable real-time, atomic level checks at the proposed trade level.

Beneficial ownership data can be exported into jurisdictional reporting systems for compliance purposes.

Benefits

  1. Improved accuracy: By using XDEX to record and track ownership of securities at the transaction level, it may be possible to more accurately determine the beneficial owners of those securities. This can help to ensure that the information provided to regulators under the CTA is accurate and up-to-date.

  2. Increased transparency: XDEX is a transparent and immutable record-keeping system, which means that all authorized parties involved in a transaction can see the ownership history of a security. This can help to increase the transparency of ownership of securities and make it easier for regulators to track and verify beneficial ownership.

  3. Reduced risk of errors: XDEX can help to reduce the risk of errors in calculating beneficial ownership. For example, manual record-keeping processes can be prone to errors, while XDEX can help to eliminate these errors by providing a tamper-proof record of transactions.

  4. Enhanced security: XDEX can help to enhance the security of transactions by providing a decentralized and encrypted record of ownership. This can help to protect against unauthorized access or tampering with ownership records.