The financial system of the United States is not only the largest in the world; it is also considered the most stable. In light of this, it may be surprising to many people that the laws governing “shell companies” have been quite weak compared to other industrialized nations. In fact, it is surprisingly easy to open a shell company with very little money and no need to disclose who the true owner is.
But that will soon be changing because of landmark legislation recently passed by Congress. The Corporate Transparency Act (CTA), which was first introduced a decade ago, was passed as part of a larger bill passed in late 2020. It requires, among other things, that shell companies disclose their true owners. The names will be listed on a confidential database accessible only to federal law enforcement. Necessary information will also be shared with banks, when applicable.
The legislation is meant to make it harder to launder money within the United States and to the United States from outside parties, including corrupt foreign governments. The exact provisions of the law are not clear from news reporting, including what kind of identity verification will be necessary to set up a new company and whether the law will apply retroactively to existing shell companies.
There are a number of legitimate, legal reasons that someone may want to own and operate a shell company, but these types of business entities have earned a bad reputation. If you currently own or do business through a shell company and are worried about how the CTA will affect you, it might be wise to consult with an experienced criminal defense attorney.