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As we approach 2024, the United States’ Corporate Transparency Act (the CTA) will soon take effect, indicating a new era of corporate governance and transparency. This development, which forms part of the US Anti-Money Laundering Act of 2020, could significantly impact the strategies of privacy-conscious individuals and companies, requiring new solutions for maintaining the desired level of privacy. In this article, we explore the implications of the CTA and discuss the measures that individuals can consider ahead of its implementation.


Understanding the CTA.

The CTA requires corporations, limited liability companies, entities registered with a Secretary of State, and foreign entities doing business in the U.S (‘Reporting Companies‘) to disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). This will greatly enhance the visibility of who effectively owns and controls these entities, assisting law enforcement efforts to counter financial crimes.

The CTA imposes obligations to report key details about the operation and ownership of Reporting Companies, including entity name, address, jurisdiction of formation, unique identification number, and identification of beneficial owners and those responsible for filing formation documents. This represents a substantial increase in required reporting, with implications for privacy and business operations. The CTA does not apply to publicly traded companies, certain funds and fund-related entities, and wholly owned subsidiaries of exempt entities.


Who is a Beneficial Owner under the CTA?

Understanding who qualifies as a Beneficial Owner becomes vitally important. Under the CTA, a beneficial owner is defined as an individual who:

  • Exercises considerable authority or influence over a Reporting Company, either directly or indirectly, or
  • Holds at least 25% of the ownership interests in a Reporting Company.

The notion of authority or influence over a Reporting Company encapsulates a level of control that surpasses merely holding ownership stakes. As detailed in the CTA, an individual is deemed to have authority or influence over a Reporting Company if they:

  • Hold a senior executive position within the company, typically including roles such as president, CEO, CFO, COO, general counsel, or any other officer role with similar authority.
  • Possess the power to appoint or terminate any senior officer or a majority of the board of directors (or equivalent governing body) of the company.
  • Can notably influence corporate decisions, including but not limited to the company’s reorganization, dissolution, merger, introduction or cessation of business lines, or amendments to governance documents.
  • Display any other form of significant authority or control over the company.


Preparing for the CTA’s Implementation.

With the CTA set to take effect on 1 January 2024, U.S individuals and businesses should not delay in understanding the implications of this legislation for their operations and asset management.

In response to these developments, businesses may want to consider various strategies to protect their privacy while ensuring compliance with the law. An attractive option for such businesses might be to transfer their domestic company assets into trusts and foreign companies, such as in the Cook Islands or Nevis, that aren’t registered to do business in the U.S.

Existing clients who hold assets via US LLCs through offshore trust structures may also wish to consider moving those assets into a Cook Islands or Nevis LLC, which are not subject to the CTA if they are not registered to do business in the U.S. and can provide a higher level of privacy. Alternatively, these assets could also be held directly by a trust.


How can Southpac help?

Southpac is ideally positioned to help, and here’s how our various services can contribute:

Foreign Asset Protection Trusts: Transferring assets into a foreign asset protection trust in the Cook Islands or Nevis can help reduce the domestic compliance burden and maintain privacy, as trusts aren’t required to disclose their beneficial owners to the FinCEN. This allows for the desired level of privacy while maintaining compliance with legal requirements and benefitting from these jurisdictions’ strong asset protection laws.

Company & LLC Services: Forming an LLC or IBC in the Cook Islands or Nevis which does not do business in the U.S. is an effective approach to keep ownership details private as they will not be included in any centralised register. Clients can manage assets flexibly through these entities, while also benefitting from these jurisdictions’ strong asset protection laws.

Trustee & Fiduciary Services: Our fiduciary services can help manage the strategies above and ensure smooth execution. By acting as your trustee, Southpac can facilitate the transition of your assets into structures which help you maintain the highest standards of privacy while ensuring compliance with all relevant laws.

By leveraging Southpac’s services, you can effectively prepare for the new environment under the CTA. We invite individuals and businesses to engage with us and explore our services. Southpac’s dedicated team stands ready to guide you through this shifting terrain to secure a prosperous and private future.

Disclaimer: the above contains the opinion of the author and is for information purposes only. It is not intended to constitute legal or tax advice. If you are considering establishing or modifying an offshore structure, please consult with legal and tax professionals in your jurisdictions of residence, domicile and tax residence beforehand.

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