When the US Corporate Transparency Act (CTA) came into effect in January 2024, it marked, in some respects, a turning point in how corporate entities are expected to demonstrate transparency in their ownership structures. For many firms, especially those involved in international procurement or with complex supplier networks, the act’s new reporting requirements have introduced both opportunities and challenges — though perhaps the opportunities have received somewhat less attention than they deserve. Under the CTA, US-registered entities must now submit beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), creating for the first time a centralised registry that can be used — or should be able to be used — to shed light on opaque corporate structures that might otherwise mask risk.
Of course, it’s one thing to have such a registry in principle. It’s another thing entirely for procurement teams and compliance officers to integrate this new data into day-to-day supply chain management in a way that adds real value. The law’s intent is clear enough: to prevent the misuse of shell companies for illicit purposes, whether that be money laundering, sanctions evasion, or other forms of financial crime. But translating that intent into operational practice requires a certain degree of thoughtfulness — and, frankly, a willingness to grapple with both the strengths and the limitations of the new system.
Procurement teams are, understandably, starting to explore how this central registry can assist in identifying shell corporations that may be lurking, undetected, within their supplier networks. The idea sounds straightforward at first glance: cross-check supplier entities against the FinCEN database, verify declared beneficial owners, and look for anomalies — situations where ownership structures appear inconsistent with what the firm knows about the supplier or where ownership is obscured through layers of intermediaries that raise red flags. But as always, the reality is somewhat more complex. Access to the beneficial ownership data is not without restrictions. Firms must ensure that their use of the data complies with privacy and confidentiality provisions. And, in practice, interpreting what the data reveals is not always a matter of simple comparison. There are cases where ownership structures are complicated for legitimate reasons — tax, estate planning, regional regulations — and distinguishing these from structures designed to conceal wrongdoing takes judgment, not just process.
What firms are beginning to develop, and perhaps this will evolve further as experience accumulates, are internal protocols for cross-checking beneficial ownership data against supplier lists. This may involve, for example, flagging suppliers where declared owners are located in jurisdictions associated with higher financial crime risk, or where ownership chains appear unusually complex given the nature of the supplier’s business. It may involve engaging with suppliers directly, seeking clarification where ownership declarations appear inconsistent or incomplete. And this, in turn, raises questions about how much weight to place on the data, how to balance the findings against other risk indicators, how to ensure that inquiries don’t alienate legitimate suppliers or impose unreasonable burdens. These are not easy decisions, and different firms may well land in different places depending on their risk tolerance, their resources, their exposure.
It is also worth acknowledging that the CTA’s registry, valuable though it is, does not solve all the challenges associated with supply chain transparency. The registry covers entities registered in the US, but many supplier networks extend far beyond US borders, into jurisdictions where beneficial ownership disclosure is less robust or, in some cases, effectively non-existent. Firms cannot afford to assume that simply checking the FinCEN data will provide a complete picture. Rather, the registry should be seen as one tool — a potentially powerful one — among several that firms need to draw on as they work to identify and address supply chain risk. Open trade data, third-party risk assessments, direct supplier engagement, independent audits — all of these remain relevant, and indeed necessary, in building a credible compliance program.
There is also a broader consideration that is, perhaps, easy to overlook amid the technicalities of cross-checking names and ownership structures. The introduction of the CTA signals a shift in regulatory expectations, a move toward greater transparency not only in financial transactions but in the commercial relationships that underpin them. Firms that take a proactive approach to integrating beneficial ownership data into their supply chain oversight are, in effect, positioning themselves to meet these evolving expectations. But the process will be iterative. No system will be perfect from the outset. There will be gaps, errors, ambiguities in the data. The task is to engage with these constructively, to learn from them, to refine processes as more experience is gained and as the regulatory environment continues — as it surely will — to evolve.
And so procurement teams, compliance officers, risk managers — all those tasked with implementing supply chain oversight — are finding themselves, once again, navigating a landscape where the rules are becoming clearer, but the application of those rules still leaves room for discretion, for interpretation, for judgment calls that may not always feel comfortable. There is, as ever, no single right answer. What matters, perhaps, is that firms engage thoughtfully with the tools at their disposal, that they document their decisions, and that they remain alert to both the potential and the limitations of the data now available to them.