This is the final post regarding the Corporate Transparency Act (CTA), which takes effect on January 1, 2024. This piece is preceded by two other articles summarized and linked here. The first post described why the Act was passed, which entities will be affected, who must file and who is exempt, and when filings will be required. The second post outlined what information will need to be filed in order to comply with the Act, who must file on behalf of the entities, and the extensive civil and criminal penalties for not making the required filings.

The CTA was passed to enable the government to monitor smaller companies for money laundering, tax fraud, and other illegal activities. This will be accomplished by requiring certain entities to file documents with the government, which will list the owners and employees who have control over these companies. If the forms are not filed, there are criminal and civil penalties available to the government in order to enforce the law. In addition, the person who files the document, identified as the "Company Applicant," may also be liable for penalties in case of a misfiling, such as by willfully providing false ownership information. Please refer to the prior posts for more specific details.

When a company files the newly required forms, they will do so with the Financial Crimes Enforcement Network, FinCEN, an agency within the Department of the Treasury. The agency has existed for many years, and already requires filings from (1) Banks and other financial holding companies, (2) Casinos, (3) Brokers or dealers in securities, and (4) Mutual Funds. In addition, individuals who own bank accounts held in other countries file an annual report, the Foreign Bank and Financial Accounts (FBAR), with this agency.

FinCEN will maintain a database of information from the CTA filings, and this database will not be publicly available. The list will only be given to federal law enforcement, a state agency (if required by court order), a federal agency on behalf of a foreign country, or a financial institution for customer due diligence purposes (a term which awaits further deposition). In addition, the information will NOT be subject to disclosure under the Freedom of Information Act.

Civil violations of the CTA will be enforced by FinCEN. Criminal violations will be enforced by the IRS. If there are violations of both, the two agencies will work together.

Filings will begin next year and cannot be made before January 1, 2024. Currently, the system for filing is not yet complete, with FinCEN being in the process of designing and building a system to collect and store the CTA reports.

This new law presents a host of questions for attorneys including (i) if and when they should notify clients of the new obligations, (ii) how to determine whether filing is required, and (iii) whether outside counsel should take responsibility for the filing. Such an undertaking presents risks, as the person who makes the filing can be subject to severe penalties if the information is incorrect. Further, the attorney has to weigh their ethical obligation not to aid or abet any fraudulent activity with their duties of preserving the client's confidential information.

Given the foregoing, I believe that many attorneys will advise their clients about the new law and also help them complete the filings (especially for smaller businesses with few employees). However, I also foresee that a good number of attorneys will only advise clients about the requirements of filing, but ultimately leave it up to the clients to either file the forms themselves, or have other individuals prepare them. New companies have already been established in order to help companies comply with the requirements of the new law and are starting to market themselves to potential clients.

In short, if an attorney is retained to handle the CTA filings, there are knotty issues regarding ethics, privilege, and the duty to disclose which must be worked out between the clients and their attorneys before the new law takes effect. As that is happening in four months, these considerations should be addressed now.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.