How Does the Corporate Transparency Act Impact Job Seekers

Businesses that operate in the United States are required to make many different types of disclosures, ranging from financial conditions to management compensation.  And now, under the Corporate Transparency Act (“CTA”) (which comes into effect on January 1, 2024) organizations operating within the United States will have another set of disclosures to be mindful of.

What is the CTA?

The CTA is a federal law enacted by Congress back on January 1, 2021.  Basically, the purpose of the CTA is to provide transparency into business entities and assist law enforcement in combatting money laundering, terrorism, drug trafficking and other illegal activities that often transpire via the use of shell corporations and other entities.

Under the CTA, certain entities –called “Reporting Companies” – must file reports with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).  These reports must identify certain company information, the entities’ beneficial owners, and company applicants.

FinCEN will use this information to create a national registry that provides access to the identities of these individuals who directly or indirectly own or control a company. By some estimates, the database will include entries for some 32 to 35 million companies.

What information must be reported under the CTA?

The complete reporting details can be found within the act itself.  But broadly speaking, the CTA requires Reporting Companies to provide FinCEN with information on individuals who are: (i) the “beneficial owners” of the entity and (ii) “company applicants” who have filed an application to create the entity or register it to do business.

A beneficial owner is defined as “any individual who, directly or indirectly, through any contract or arrangement, understanding, relationship of otherwise exercises substantial control over the entity and owns or controls not less than 25 percent of the company.”

A company applicant is: (i) the individual who directly files the document that creates or first registers the reporting company and (ii) the individual primarily responsible for directing or controlling the filing of the relevant document.

For each qualifying beneficial owner and company applicant, the Reporting Company must report: the individual’s (i) legal name; (ii) birthdate; (iii) address; and (iv) an identifying number from the individual’s driver’s license, passport or other approved document, as well as an image of that document.

How do these disclosures benefit job seekers?

Today’s workforce is more conscious about corporate responsibility and ethical behavior than perhaps ever before.  Many employees refuse to work for organizations if they smell any form of corruption or socially unconscionable behavior.  Not surprisingly, the increased transparency and information offered by the CTA regarding companies and company organizations could help job seekers make more informed decisions and reduce the risk of associating with a dishonest or unethical employer.

The problem is, at least for now, that the information reported to FinCEN will be stored in a secure private database and will not be available to the public. As it stands, the only organizations granted access to the private database will be: (i) federal law enforcement agencies; (ii) state, local, or tribal law enforcement agencies; (iii) federal agencies on behalf of a foreign country; or (iv) financial institutions for customer due diligence purposes and if authorized by the reporting company.

So, as it stands, the law will not directly benefit job seekers. But it is possible that over time, more of this information will become publicly available.

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