Corporate Transparency Act (CTA)

The Corporate Transparency Act (CTA) is federal legislation designed to fight , , and other illegal financial activities. The law works by requiring certain companies to disclose information about who actually owns and controls them—their "."

However, the law's reach has changed dramatically since it first took effect. In March 2025, the issued new rules that significantly narrowed the law's scope. Now, only foreign companies that have registered to do business in the United States must report this ownership information. Most domestic hedge fund vehicles are completely exempt.

Congress passed the Corporate Transparency Act at the end of 2020 as part of a broader package called the . Lawmakers wanted to strengthen existing rules and close loopholes that criminals were using to hide money through .

This legislation was designed to work alongside existing anti-money laundering laws, including the and the USA PATRIOT Act of 2001. These laws already required banks and other financial institutions to monitor and report them to authorities.

Initially, the CTA cast a wide net. It required most domestic corporations, limited liability companies (LLCs), and similar entities to report to FinCEN. However, legal challenges and policy reviews led to significant changes in March 2025 that exempted domestic companies entirely.

Under the current rules effective March 2025, only "foreign reporting companies" must comply with these requirements. These are companies formed under foreign law that have registered to conduct business in any U.S. state or tribal jurisdiction.

Here's what the current limited scope means:

• Domestic hedge fund vehicles are exempt regardless of how they're structured (corporation, LLC, etc.)
• U.S. persons don't need to report as beneficial owners of any entity
• Foreign entities must file quickly—they have just 30 days after registering in the U.S. to submit their initial report
• Previous requirements were eliminated—domestic companies that were already reporting no longer need to do so

This represents a major shift from the original law, which would have affected thousands of domestic investment vehicles.

Even though the Corporate Transparency Act now has limited impact on hedge funds, it's still part of a larger anti-money laundering system. Many hedge fund advisers had already adopted voluntary anti-money laundering programs as good business practice, and these programs remain valuable.

This legislation connects with existing due diligence practices that many advisers use when evaluating high-risk investors. This includes extra scrutiny for and investors from known for weak anti-money laundering enforcement. While domestic reporting requirements are gone, these due diligence practices are still important for managing regulatory and reputation risks.

Since domestic entities are now exempt, most hedge funds face very few direct requirements under the Corporate Transparency Act. However, there are still some things to consider:

Limited Direct Obligations: Most U.S.-organized hedge fund vehicles don't need to report anything. Investment advisers themselves also aren't subject to beneficial ownership reporting. This means most funds don't need to build systems for collecting and reporting ownership information.

Ongoing Risk Management: Even with the exemption, hedge funds should continue focusing on voluntary anti-money laundering programs and investor due diligence. They should also coordinate with service providers on other compliance requirements and monitor for potential future regulatory changes.

Foreign Entity Considerations: Hedge funds that use foreign-organized vehicles registered in the U.S. may still have reporting obligations under the CTA. Due diligence on foreign service providers and counterparties remains important, as does compliance with sanctions screening programs administered by the .

The Corporate Transparency Act operates alongside other reporting requirements that still apply to hedge funds. These include , which require U.S. persons to report financial interests in foreign accounts. Hedge fund advisers also continue to file various SEC reports, including and .

Because the CTA now has such limited scope, it rarely conflicts with existing hedge fund reporting requirements. However, advisers should stay informed about potential regulatory developments that could change this situation.

Several other regulatory initiatives have also experienced delays or changes:

FinCEN AML Requirements: The proposed rule requiring investment advisers to implement formal anti-money laundering programs has been postponed until January 1, 2028. This gives the industry more time to prepare and allows regulators to further assess the requirements.

SEC Private Fund Adviser Rules: In August 2023, the SEC adopted comprehensive rules governing private fund advisers. However, the struck down these rules in June 2024, eliminating those specific regulatory requirements.

While the March 2025 changes dramatically reduced the Corporate Transparency Act's immediate impact on hedge funds, regulators remain focused on fighting illicit finance. The current rule is , meaning it's subject to and could change again after FinCEN reviews the feedback.

Hedge fund advisers should continue monitoring regulatory developments and maintaining strong voluntary compliance programs. Given ongoing enforcement focus on anti-money laundering violations, there's always potential for new regulatory initiatives targeting illicit finance risks in the investment management sector.

The key takeaway is that while the CTA currently has minimal direct impact on most hedge funds, the underlying policy goals—preventing money laundering and increasing financial transparency—remain high priorities for regulators. Staying proactive with compliance programs helps funds manage both current risks and potential future requirements.