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Hey Google, Where’s the Easiest Place to Set Up a Shell Company?

You’ll be surprised by the answer:  a country with no shortage of regulation and financial sophistication.  It’s the United States.

The U.S. government has taken a lot of steps in recent years to identify secret foreign bank accounts, require reporting of transactions with foreign related entities, and identify foreign owned entities operating in the United States.

The recently passed 2021 Defense Authorization Bill incorporated language of the Corporate Transparency Act of 2020  and expanded on the information required to be disclosed by persons forming business entities in the United States.  The intention of the newly enacted statute is to target bad actors who own or control businesses acting as a front for illegal activities.

While the process is yet to be worked out, essentially when an entity is formed and meets certain criteria, the beneficial owner(s) will be required to be disclosed.  A beneficial owner is an individual who exercises control over the entity or owns or controls not less than 25% of the ownership.  Disclosure will include full name, date of birth, residence, and identification number.  Existing entities will have 2 years to make the disclosure.  A subsequent change in beneficial ownership will need to be disclosed within 12 months.

Corporations and LLC’s, as well as similar entities formed under state law, must report as must foreign entities registered to do business in the U.S.  Future regulations will clarify if partnership and trusts need to register.  Entities in regulated industries, as well as a business located in the US with more than 20 employees and more than $5 million in revenues are excluded from disclosure.

Failure to disclose or update will carry a fine of up to $10,000 and imprisonment for up to two years.

Currently, no action needs be taken – the rules are expected to be implemented by the end of 2021. At that point, states should begin the process of including the registration as part of the formation process.   Existing business owners should be alert for an announcement to register.

Contact our Withum’s Forensic and Valuation Services to help address any further questions.

Forensic and Valuation Services

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