While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to submit beneficial ownership information reports voluntarily.
Thus, for the time being at least, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. However, reporting companies who rely on this injunction and do not file a BOI report need to be vigilant in monitoring developments as the court cases proceed.
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The Corporate Transparency Act of 2021 (CTA), effective January 1, 2024, brings new compliance burdens and potential hefty penalties.
This law is a product of the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). The CTA requires Reporting Companies – i.e., most every corporation, partnership, limited liability company or statutory trust formed or created by the filing of documentation with a U.S. state or territorial government and any foreign entity registered with a state or territorial government to do business in that state or territory – to make certain filings about individuals who are “Beneficial Owners” of those entities.
The CTA imposes new compliance burdens on Reporting Companies, together with hefty penalties for non-compliance. There are a number of exemptions, but companies will need to determine if one of the CTA’s 23 precisely drawn exemptions applies. Even an inadvertent failure to comply might give rise to a criminal fine of as much as $10,000 and imprisonment for up to two years. Even if a criminal charge is avoided, a failure to file may result in a $500 per day civil penalty.
These penalties are the sharp teeth in the CTA’s effort to ferret out persons involved in money laundering and similar activities through the use of shell companies in the U.S.
The CTA requires each Reporting Company (namely, every kind and size of entity that exists on December 31, 2023, which cannot conclude that it qualifies for an exemption) to file with FinCEN information regarding itself and its beneficial owners not later than January 1, 2025. Entities created or first registered on or after January 1, 2024 must file within 90 days following their creation or first registration (the 90-day period is reduced to 30 days for entities formed or first registered in 2025 or beyond). If the information in a filing changes, the affected entity will have only 30 days to update its filing.
Duane Morris’ CTA Strategy Team
Duane Morris’ multi-practice CTA Strategy Team has been studying the CTA and guidance from FinCEN and stands ready to assist in determining the specific impact of the new law on your organization, as well as actions to take to comply with the CTA. Duane Morris will continue to publish additional Alerts providing information about the CTA to assist in compliance and to help answer questions arising out of the CTA. We urge everyone to review and study the recently updated FinCEN guidelines for the most current views from the U.S. Department of the Treasury and encourage you to reach out to any of us with additional questions.
For More Information
For more information, please contact Thomas R. Schmuhl or any of the CTA Strategy Team members referenced in the Attorney Listing.