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Corporate Transparency Act

John W. Sellers
Attorney John W. Sellers
Corporate Transparency Act Team Lead
Former DOJ Trial Attorney
envelope iconContact John

The Corporate Transparency Act is set to impose what could be a significant compliance headache on companies across the country. While the goal is to combat the problem of money laundering and to increase a sense of transparency in the corporate world by requiring companies to disclose their owners, the regulations that the U.S. Department of the Treasury seems set to release in the coming months can create an onerous burden for companies of all sizes.

The business litigation lawyers at Oberheiden P.C. can help you and your company come into compliance with the Corporate Transparency Act and avoid the disturbingly high penalties that come with noncompliance.

The Corporate Transparency Act

After failing to become law in 2019, the Corporate Transparency Act was integrated into the Anti-Money Laundering Act of 2020, which was then included and passed in the National Defense Authorization Act of 2021, over the veto of then-President Trump.

Now found at sections 6401 through 6403 of that Act and codified at 31 U.S.C. § 5336, the Corporate Transparency Act requires companies to submit a report to the Financial Crimes Enforcement Network (FinCEN) that identifies each beneficial owner of the company. The Act also instructs FinCEN to create a set of regulations to facilitate the submission of those reports, including how they are to be submitted and exactly what they must include, and to host a database of the resulting information for law enforcement to access. FinCEN released its proposed regulations for the Corporate Transparency Act on December 8, 2021. Public comments were open until February 7, 2022.

The final set of regulations from FinCEN have yet to be released. They are expected in late 2022 or early 2023, though politicians from both sides of the aisle have urged FinCEN to expedite the process.

However, based on the proposed regulations that FinCEN released in December, 2021, and the broad language of the Corporate Transparency Act, itself, the burden of compliance that companies seem likely to face will be significant.

Put our highly experienced team on your side

Dr. Nick Oberheiden
Dr. Nick Oberheiden

Founder

Attorney-at-Law

Lynette S. Byrd
Lynette S. Byrd

Former DOJ Trial Attorney

Partner

Brian J. Kuester
Brian J. Kuester

Former U.S. Attorney

Amanda Marshall
Amanda Marshall

Former U.S. Attorney

Local Counsel

Joe Brown
Joe Brown

Former U.S. Attorney

Local Counsel

John W. Sellers
John W. Sellers

Former Senior DOJ Trial Attorney

Linda Julin McNamara
Linda Julin McNamara

Federal Appeals Attorney

Aaron L. Wiley
Aaron L. Wiley

Former DOJ attorney

Local Counsel

Roger Bach
Roger Bach

Former Special Agent (DOJ)

Chris Quick
Chris J. Quick

Former Special Agent (FBI & IRS-CI)

Michael S. Koslow
Michael S. Koslow

Former Supervisory Special Agent (DOD-OIG)

Ray Yuen
Ray Yuen

Former Supervisory Special Agent (FBI)

Most Companies are Covered by the CTA

The Corporate Transparency Act is extremely broad. It covers “reporting companies” and defines the term in the statute passed by Congress, now found at 31 U.S.C. § 5336(a)(11). These “reporting companies” include any domestic entity that was formed by filing a document with a secretary of state, as well as any foreign entity that has become registered to do business in the United States by filing a document with a secretary of state. This includes “a corporation, limited liability company, or other similar entity.” According to FinCEN’s regulations, at 86 F.R. 69947, this would include:

  • Limited liability partnerships and limited partnerships
  • Business trusts or statutory trusts
  • Most limited partnerships

Subsection (a)(11)(B) of the Corporate Transparency Act lists 23 exceptions. These companies are exempt from the reporting requirements of the Act. Some of the most prominent of these are:

  • Government entities
  • Banks and credit unions
  • Insurance companies
  • Public accounting firms
  • Entities which are owned or controlled by other exempt entities
  • Entities that do not actively engage in business
  • Registered securities brokers or dealers
  • Any entity that:
    • Has more than 20 full-time employees in the U.S.,
    • Filed a federal tax return last year that showed over $5 million in gross sales, including those made by other entities that it either owns or operates through, and
    • Operates at a physical office that is within the United States.

CTA Requires Companies to File Information About Themselves

Companies that fall within the definition of a “reporting company” under the Corporate Transparency Act have to identify all of their “beneficial owners” or, if the company is in the process of forming, all of the individuals and entities behind its application to incorporate.

According to FinCEN’s regulations, this requires the company’s initial report to FinCEN to include its own:

  • Name
  • “Doing business as” names
  • Business address
  • Jurisdiction of registration or formation
  • Identification number, usually the company’s Taxpayer Identification Number (TIN)

Under the Act, all of a company’s reports to FinCEN have to provide the following information about all of the company’s beneficial owners or applicants:

  • Full legal name
  • Date of birth
  • Current street address
  • Identification number, with supporting documentation

31 U.S.C. § 5336(a)(3) defines a “beneficial owner” as an individual who, directly or indirectly:

  • Exercises substantial control over the entity, or
  • Owns or controls at least 25 percent of the ownership interests of the entity.

There are a few exceptions to this definition, like if the person only has an interest in the company through a right of inheritance, or if they are acting solely as an employee of the entity. However, FinCEN’s proposed regulations, at 86 F.R. 69936-7, prohibits senior officers from using the employee exception. “Senior officers” are those who exert substantial control over the company and, according to 86 F.R. 69944-5 and proposed regulation 31 C.F.R. § 1010.380(f)(8), would include a company’s:

  • President
  • Secretary
  • Treasurer
  • Chief financial officer (CFO)
  • Chief executive officer (CEO)
  • Chief operating officer (COO)
  • General counsel

Proposed 31 C.F.R. § 1010.380(a)(1)(i) states that information about these owners or applicants behind the company have to be reported to FinCEN within one year of the effective date of the bureau’s final regulations. Companies that form after those regulations are released are given only 14 calendar days to comply. Should any of the information in the report become inaccurate or out-of-date, FinCEN’s regulations demand that a current report be filed within 30 days.

Information Will Not Be Publicly Available

The information that gets reported to FinCEN under the requirements of the Corporate Transparency Act will not be available to the public, though. Because the goal of the Corporate Transparency Act is to detect, and therefore deter, money laundering, only the following agencies can access it:

  • Federal law enforcement agencies
  • The Internal Revenue Service (IRS)
  • Intelligence agencies

Even state law enforcement officers will need to get a court order before getting access to the data held by FinCEN.

Steep Penalties for Noncompliance

The penalties for noncompliance with the Corporate Transparency Act and the regulations promulgated by FinCEN are shockingly high.

Under 31 U.S.C. § 5336(h), willfully failing to submit a report about a company’s beneficial owners, or willfully providing one that has false information, is punished with a civil penalty of $500 for every day that the violation continues. Even worse, the violation can also be punished criminally, with a $10,000 fine and up to 2 years in prison.

Some Frequently Asked Questions About the Corporate Transparency Act and Oberheiden P.C.

What are the Compliance Requirements Right Now?

 

Until FinCEN promulgates its regulations for reporting the beneficial owners of domestic and foreign corporations, there are no compliance requirements under the Corporate Transparency Act.

However, FinCEN is expected to finish drafting and to release those regulations in late 2022 or in early 2023. There is significant political pressure for the Treasury bureau to issue them as early as possible, as the database of corporate owners that it would create is needed to enforce the sanctions that were imposed on Vladimir Putin and other Russian oligarchs for the war against Ukraine. This may push FinCEN to get the regulations out this year, rather than next.

How Onerous are These Reports Going to Be?

 

Determining who your company’s beneficial owners are, drafting the report, and then submitting it to FinCEN is not going to be quick or easy, especially for larger reporting companies. Maintaining that report for every time a change is made is going to take constant vigilance. Complying with the Corporate Transparency Act is going to be another significant task, on top of all of your corporation’s other required disclosures. The penalties for not fulfilling these obligations, though, are staggeringly high.

Additionally, the breadth of these compliance requirements is substantial. Nearly every corporation in the country, all the way down to single-member LLCs, will be required to submit a report to FinCEN.

What is the Purpose of the Corporate Transparency Act?

 

The Corporate Transparency Act was passed in order to cut down on the use of corporations and shell companies to launder money. In many cases, legitimate enterprises had beneficial owners or shareholders that would funnel money out of the business and into another one that they controlled for nefarious purposes, or vice versa. By requiring companies to disclose the people who financially benefitted from the company’s business activities and then giving law enforcement access to the resulting database of information, it can make it more difficult to clean up ill-gotten funds.

Why Does Oberheiden P.C. Not Call Itself the Best Law Firm for Corporate Compliance?

 

Because we prefer to let our work stand on its own. We have a team of senior lawyers that have a high level of experience in business litigation and corporate compliance, as well as an army of experienced investigators, many of whom joined our firm after retiring from federal agencies like the IRS or the FBI. Together, these lawyers and investigators have been able to provide experienced legal representation to companies across the country. We think that it is better left to these clients to judge our success inside and outside of the courtroom.


Contact Oberheiden P.C. for Compliance Assistance

The litigation lawyers at the national law firm Oberheiden P.C. help companies come into compliance with government regulations across the country. Contact them online or call their law office at (888) 680-1745 for help with the Corporate Transparency Act.

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