Corporate Transparency Act Compliance: What In-House Counsel Need to Know

It has been three years since the adoption of the Corporate Transparency Act (CTA), which went into effect at the beginning of this year, and now the first filing deadline is fast-approaching on January 1, 2025. In-house counsel at companies of all sizes are racing to get important questions answered so they can be confident they are in full compliance with the CTA’s various rules.

For example, at a webinar for legal and compliance professionals held in May, nearly 40% of respondents said they were most concerned about the CTA rule regarding ongoing tracking of beneficial ownership, according to Law360 Pulse. The new law requires organizations to submit personal identifying information about every individual who is considered a “beneficial owner” of the company—meaning anyone who owns at least 25% or has significant authority over important business decisions.

Experts told Law360® “how far-reaching” the CTA is in its breadth and referred to it as “the biggest change to corporate compliance in over 100 years.”

Corporate Transparency Act (CTA): Overview and Key Provisions

The CTA was enacted by Congress in 2021 as part of the William M. (Mac) Thornberry National Defense Authorization Act. The goal of the law is to combat illicit activity—such as tax fraud, money laundering and terrorism financing—by capturing more ownership information for businesses operating in the U.S. market.

The CTA requires companies that are formed or registered to do business in the U.S. to file a beneficial ownership report with the Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury Department. These reports are intended to help FinCEN assemble a massive database that can be used to fight money laundering and other financial crimes, in cooperation with other U.S. law enforcement agencies.

The FinCEN database will not be publicly available, but the agency will share it with U.S. law enforcement professionals, financial institutions and some non-U.S. law enforcement partners.

Corporate Transparency Act Requirements: A Comprehensive Summary

The Practical Guidance Team at LexisNexis® published an insightful practice note, “The Corporate Transparency Act and Beneficial Ownership Reporting Requirement,” authored by Jonathan B. Wilson, partner at Taylor English Duma and co-founder of FinCEN Report Company. Mr. Wilson provides a helpful synopsis of the CTA and offers a recap of key CTA requirements.

Here are some highlights for in-house counsel to review:

• Definitions

A beneficial owner is an individual who directly or indirectly controls or influences the company. Generally, individuals owning 25% or more of the company are considered beneficial owners. An individual who would otherwise be included as a beneficial owner may be omitted if they call into one or more of five categories, such as if they are a minor or if they are a creditor of the company.

• Exemptions

The CTA exempts from the obligation to file a beneficial ownership report any company that falls into one or more of 23 exemption categories. Some entities, such as publicly traded companies and certain non-profits, may be exempt from the reporting requirements. Moreover, small businesses with fewer than 25 employees and an annual gross revenue of less than $10 million may also be exempt.

• Deadlines

Reporting companies are required to provide information about their beneficial owners to FinCEN within 180 days of the company’s formation or the effective date of the CTA, whichever is later. Companies must report any changes to their beneficial ownership information within 30 days of the change.

• Penalties

The CTA contains serious penalties for non-compliance. A reporting company that fails to file a beneficial ownership report when due is subject to a $500 per day fine up to a maximum of $10,000. Willful failure to file a report or an intentional filing of inaccurate information is punishable as a felony by up to two years imprisonment. A willful violation in combination with other anti-money laundering violations can result in an amplified penalty of up to 10 years imprisonment.

• Protocols

In-house counsel should establish procedures for collecting and verifying beneficial ownership information data. Maintaining accurate records of this information is essential for compliance. There should also be data security protocols to protect sensitive personal information and an internal training plan to ensure that employees understand their responsibilities under the CTA.

Key Resources for In-House Counsel on Corporate Transparency Act Compliance

The Practical Guidance team at LexisNexis has released the Corporate Transparency Act Resource Kit, a collection of resources that examine the CTA and reporting rule requirements in greater detail. It includes practice notes, articles, templates, clauses and checklists that will help in-house counsel guide their corporate compliance with the CTA.

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