The effective date of the Corporate Transparency Act and its corresponding rules promulgated by FinCEN was January 1, 2024. In January 2023, we published an article that discussed the intent and importance of the CTA (available here). The CTA may be a landmark piece of legislation that reshapes how certain entities report and disclose information related to its owners to the federal government. Since January of 2023, FinCEN issued numerous updates, notices and amendments to the Reporting Rule (defined in our January 2023 article). In this article, we provide the following overviews of the latest updates to the CTA and Reporting Rule:
- Information System.
On September 13, 2023, FinCEN provided further guidance on the system that will be used to process and hold information under the CTA and provided clarification on the (i) types of individuals that would be included in the system (e.g., beneficial owners and company applicants); (ii) categories or records contained in the system; (iii) use of records maintained in the system; and (iv) policies and procedures for storage, retrieval and retention of records in the system.
- Agency Information Collection Activities; Submission for OMB Review; Comment Request; Beneficial Ownership Information Reports.
On September 29, 2023, FinCEN issued a notice that confirmed various submission requirements through the system that will be used to process and hold information under the CTA. In particular, ownership information of reporting companies, their beneficial owners and company applicants will be filed through this system by (1) completing and uploading an ownership report form or (2) filling out ownership information through the CTA system directly.
- Use of FinCEN Identifiers for Reporting Beneficial Ownership Information of Entities.
On November 8, 2023, FinCEN clarified certain aspects of the filing process including the use of an entity’s FinCEN ID, and when and how reporting companies may use a FinCEN ID to report the ownership information of certain related entities of such reporting companies.
- Report Filing Extension for Entities Formed in 2024.
On November 30, 2023, FinCEN, published a final rule to extend the filing deadline for companies formed or registered in 2024. FinCEN extended the deadline for such reporting companies from 30 to 90 calendar days. The deadline for CTA filings for companies formed or registered on or after January 1, 2025 remains unchanged–such companies will be required to complete and file their ownership reports within 30 days of formation.
- Ownership Information Access and Safeguards.
On December 22, 2023, FinCEN, promulgated a rule that implemented certain access and safeguard provisions, which included safeguards protecting sensitive personally identifiable information reported to FinCEN.
This rule expressed that only authorized recipients have access to ownership information for specific purposes permitted by the CTA, and that authorized recipients may only re-disclose ownership information in ways that balance security and confidentiality protections.
Penalties for unauthorized disclosure or use by authorized recipients may result in: (i) civil penalties in the amount of $500 for each day a violation continues; (ii) criminal penalties of a fine of not more than $250,000, imprisonment for not more than 5 years, or both; and (iii) enhanced criminal penalties including a fine of up to $500,000, imprisonment of not more than 10 years, or both, if a person commits a violation while violating another law of the United States or as part of a pattern of any illegal activity involving more than $100,000 in a 12-month period.
- Inflation Adjustments to Civil Monetary Penalties, Beneficial Ownership Information Reporting Violation and Unauthorized Disclosure or Use of Beneficial Ownership Information.
On January 25, 2024, FinCEN published a final rule adjusting the civil monetary penalties under the Reporting Rule and CTA for inflation. Accordingly, the $500 civil monetary penalty for violations of the reporting requirements and use and disclosure safeguards was increased to $591 per day for so long as the violation continues.
- Agency Information Collection Activities; Proposed Collection; Comment Request; Beneficial Ownership Information Requests – Notice and Request Comment.
On January 30, 2024, FinCEN issued a notice inviting comments on the burden of collecting information associated with specific ownership information requests for ownership information requesters. The comment period under the Notice closed on April 1, 2024, and no further guidance has been provided.
- Important Case Law Update: National Small Business United, dba the National Small Business Association, et. al. v. Janet Yellen et. al. (No. 5:22-cv-01448-LCB; N.D. Ala. 2022).
On November 15, 2022, the NSBA filed a lawsuit in the U.S. District Court for the Northern District of Alabama challenging the constitutionality of the CTA, and in particular, alleging the CTA exceeds the limits of congressional power and infringes upon constitutional rights in violation of the First, Fourth and Fifth Amendments to the U.S. Constitution.
On March 1, 2024, the court entered a final declaratory judgment, concluding that the CTA exceeds the U.S. Constitution’s limits on Congress’s power and enjoining the U.S. Department of the Treasury and FinCEN from enforcing the CTA against the plaintiffs.
On March 4, 2024, FinCEN issued a notice that it will comply with the court’s order and continue to comply as long as the order remains in effect. On March 11, 2024, FinCEN updated its March 4, 2024 notice, and in response to the court’s ruling, the Justice Department, on behalf of the U.S. Department of Treasury, filed a Notice of Appeal to the United States Court of Appeals for the Eleventh Circuit.
While this lawsuit is on appeal, FinCEN will continue to enforce the CTA while complying with the court’s ruling. This means that unless an entity was a member of the NSBA at the time of the court’s ruling or FinCEN issues further guidance, entities subject to the CTA’s purview are still required to report.
Conclusion
All entities, whether in existence prior to January 1, 2024 or newly formed, should begin to prepare for and file ownership reports pursuant the reporting obligations that may exist under the CTA. If you would like to prepare for the CTA and its regulatory reporting requirements, make an ownership report filing, and/or have questions as to how the CTA and Reporting Rule apply to your business and how to file, please contact Aaron Kacer or Steve Lawrence.
