More than two million corporations and limited liability companies are formed each year in the United States, yet U.S. states do not generally require disclosure of beneficial ownership information when entities are formed. Bad actors, ranging from drug traffickers to foreign corrupt officials, may exploit the corporate formation process to launder proceeds of illicit conduct. Congress has taken note that such actors may layer entities into structures resembling Matryoshka dolls to conceal ownership and evade detection. In an effort to protect U.S. national security and to bring the United States into compliance with global anti-money laundering standards, Congress recently enacted federal legislation requiring corporations, limited liability companies, and other similar entities established in or registered to do business in the United States to report information on beneficial owners.

The Corporate Transparency Act (the CTA) became law on Jan. 1, 2021, with the enactment of the Anti-Money Laundering Act of 2020 (the AMLA), part of the National Defense Authorization Act for Fiscal Year 2021 (the NDAA). The CTA shifts the burden of collecting beneficial ownership information from financial institutions, which are currently required to identify and verify beneficial owners of customers as part of the due diligence process at account opening, to so-called "reporting companies." The CTA constitutes the most significant change to the U.S. anti-money laundering regime since the USA PATRIOT Act of 2001, and legal practitioners, industry, and law enforcement should pay careful attention to its rollout, which will primarily be addressed in regulations to be promulgated by the U.S. Department of Treasury.