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Transparency Laws in US

The world of finance is often burdened with the problematic choice of identifying actual owners of companies. There exists a lack of transparency that can create opportunities for money laundering, terrorist financing, and other illicit activities. The US enacted the Corporate Transparency Act (CTA) in 2021 and various local transparency laws to combat this issue.

Striving for compliance and safe transactions is a brave step that requires a lot of analysis and knowledge — regulation basis is crucial for employment and taxational systems.

Transparency laws in the US address two key areas: anti-money laundering and workplace pay equity. The Corporate Transparency Act (CTA) aims to establish a national registry of beneficial owners for businesses, making it harder to hide actual ownership and hinder illegal activities like money laundering and terrorism financing.

As concerns employment, pay transparency laws are gaining traction, requiring employers to disclose salary ranges to job seekers and current employees. This promotes a more fair job market by fostering informed decisions for workers and helping to close the gender pay gap.

The Corporate Transparency Act (CTA) aims to combat money laundering by requiring certain businesses to report their "beneficial owners" — individuals with significant ownership or actual control — to the Financial Crimes Enforcement Network (FinCEN). This recent law has faced legal challenges, but its impact on most businesses remains limited.

Key features of the CTA

Requires "reporting companies" (mostly LLCs and corporations) to file beneficial ownership information (BOI) reports with FinCEN.

Defines a beneficial owner as someone with at least 25% ownership or substantial control over the company.

Aims to increase transparency and hinder illegal activities like money laundering.

Recent legal challenge:

  • The National Small Business Association (NSBA) sued the government, arguing the CTA is unconstitutional

  • A court temporarily blocked enforcement against the NSBA and its members (as of March 1, 2024)

  • This only affects a tiny percentage (0.1-0.2%) of potentially impacted businesses

What it means for most businesses

  • The court ruling has a minimal impact — over 30 million businesses still need to file BOI reports

  • The government will likely appeal the decision and seek a stay, meaning enforcement could resume

  • Businesses facing deadlines should consider filing to avoid potential penalties for non-compliance

Impact on accounting firms:

  • Expect increased client inquiries about the CTA and BOI reporting

  • Firms should be prepared to offer advisory and compliance services

  • Review potential risks and consider guidance for engagement letters and insurance coverage

While the legal battle continues, most businesses remain obligated to comply with the CTA and file BOI reports.

CTA and limitations across states

The CTA applies broadly to most LLCs and corporations formed or registered to do business in the US. However, some exemptions exist, including:

  • Certain already-regulated entities: banks, credit unions, publicly traded companies etc

  • Inactive businesses: entities not engaged in any activity for a year

  • Certain types of trusts: testamentary trusts, grantor-retained annuity trusts etc

It's important to note that these exemptions may vary slightly by state. Businesses should consult with legal counsel to determine their specific CTA reporting requirements.

New York LLC Transparency Act

Another layer of complexity is that some states have enacted their transparency laws alongside the CTA. New York's LLC Transparency Act (NY LLC Act) is a prime example.

Critical features of the NY LLC Act

  • Applies to all LLCs formed in New York (domestic LLCs) and those registered to do business there (foreign LLCs)

  • Overlaps significantly with the CTA but may have stricter requirements or filing deadlines

  • Requires filing a beneficial ownership disclosure statement with the New York Department of State

The NY LLC Act creates a two-tiered system for LLCs in New York. They must comply with federal (CTA) and state (NY LLC Act) reporting requirements.

The veil of secrecy surrounding salaries is starting to lift in the US. We're witnessing a two-pronged approach to transparency, with both federal legislation and individual state laws mandating employers to disclose salary ranges to job seekers and, in some cases, current employees.

Federal push for pay transparency

On the national level, two key bills aim to establish standardized pay transparency across the country:

  • Salary Transparency Act

This proposed legislation would require all US employers to disclose wage ranges associated with all job openings.

  • Pay Equity for All Act

This bill would not only mandate salary range disclosure but also prohibit employers from asking job candidates about their salary history. This combats potential pay discrimination based on previous earnings.

While the fate of these bills remains to be seen, their introduction signifies a growing focus on pay transparency at the federal level.

The field of pay transparency laws is a patchwork now, with individual states enacting their regulations. Here's a breakdown of the key points to consider:

  • Number of states with ratified laws

As of today, over 10 states have enacted pay transparency laws.

  • Disclosure requirements

The specific requirements regarding when and how salary ranges must be disclosed vary by state. Some require ranges in job postings, while others allow disclosure after the first interview or upon applicant request.

  • Scope of disclosure

Some states mandate disclosure only for basic salary, while others extend it to benefits, bonuses, commissions, and other forms of compensation, providing a brighter picture of the total package.

  • Remote work coverage

Some states require transparency for remote positions, while others may only cover in-office or hybrid roles.

In conclusion, the fight against financial crime hinges on identifying the actual owners of companies. The murky waters of opaque ownership structures have long facilitated money laundering, terrorist financing, and other illegal activities. Through the Corporate Transparency Act (CTA) and a growing body of state transparency laws, the US response represents a significant step towards financial integrity.


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