The Corporate Transparency Act: Our Federal Government Is Casting a Dragnet for Trophy Fish, and Your Business Is Part of Its Bycatch

• Jurisdiction: United States,Federal
• Citation: Vol. 92 No. 4 Pg. 48
• Publication year: 2023
• Pages: 48
• topic: Banking and Finance Law,Corporate / Commercial,Criminal Law,Federal

The Corporate Transparency Act: Our Federal Government Is Casting a Dragnet for Trophy Fish, and Your Business Is Part of Its Bycatch 92 J. Kan. Bar Assn 4, 48 (2023) Kansas Bar Journal August, 2023

July, 2023

corporate transparency act

The Corporate Transparency Act: Our Federal Government Is Casting a Dragnet for Trophy Fish, and Your Business Is Part of Its Bycatch

By William E.H. Quick Polsinelli PC

Executive Summary

A new federal law requires businesses and their owners to disclose personal information and photographs to a federal law enforcement agency, absent limited exceptions.

Who's the BOSS?

If you have not heard of The Corporate Transparency Act,^[1] you are not alone. Many business owners and their professional advisors are taken aback upon first learning of the CTA's existence and scope. At its core, the CTA requires reporting of personal direct and indirect beneficial ownership and control information pertaining to businesses operating in the U.S. The personal identifying information to be reported includes names, birthdates, addresses, and photographs.^[2] The financial crimes enforcement arm of the U.S. Department of the Treasury, FinCEN, is currently building out a Beneficial Ownership Secure System to receive, store, and manage this vast influx of personal information.^[3] BOSS will "go live" on Jan. 1, 2024.^[4] FinCEN estimates 32 million businesses will be required to report in year one alone. The CTA aims to prevent money laundering, illicit financial activities, corrupt practices, and terrorist financing, but many innocent parties will be swept up in its bycatch. The information in BOSS will be accessible to federal, state, local, and tribal law enforcement, certain financial institutions (with customer consent), and other authorized requestors.^[5] However, BOSS reports filed under the CTA are exempt from search and disclosure under the Freedom of Information Act, "open government" or similar laws.^[6]

Who must report?

The CTA requires certain businesses, including privately held and non-profit entities, to report direct and indirect human beneficial ownership, control, and service provider information to FinCEN.^[7] Beginning Jan. 1, 2024, PII must be reported for persons owning, directly or indirectly, 25% or more of the business or who have "substantial control" over the business. Every business will have at least one person to report, regardless of its ownership or control structure. Once the initial report is filed, this information must be updated within 30 days of any subsequent event that causes such information to no longer be accurate. Attribution of ownership and what constitutes substantial control will vary from business to business and will require analysis and advice. Law enforcement authorities will use this information to streamline their investigations and enforcement activity, thus bypassing the "shell game" historically posed by multiple levels of business entity ownership and affiliation.^[8]

The CTA impacts "reporting companies,"^[9] their incorporators and organizers (i.e., "company applicants"), service providers (also "company applicants"), and owners and control persons (i.e., "beneficial owners"), as well as the financial institutions (i.e., banks, credit unions and money service businesses — think Venmo or PayPal) with whom they do business.^[10]A "reporting company" is a corporation, limited liability company, or other "similar entity"^[11] that is created by the filing of a document ("domestic reporting company") or registered to do business in the United States by the filing of a document ("foreign reporting company") with a secretary of state or a similar Indian tribal office^[12] so long as it does not fall within specific, limited, excluded categories. It bears specific note that under the Kansas revised limited liability company act, a series of a Kansas limited liability company may only be established through a filing of a Kansas Limited Liability Company Certificate of Designation with the Kansas secretary of state's office, and, as such, series of a Kansas LLC are specifically and independently subject to the CTA's reporting obligations.

“The The CTA requires certain businesses, including privately held and non-profit entities, to report direct and indirect human beneficial ownership, control, and service provider information to FinCEN.

Exclusion categories generally include already regulated business entities: SEC-regulated entities, utilities, financial institutions, insurance providers, commodity exchanges, pooled investment vehicles, Internal Revenue Code Section 501(c) registered nonprofits, and governmental and quasi-governmental entities.^[13] In addition, there is an exclusion from "reporting company" status for "large operating companies" that meet all three of the following criteria:^[14](1) have a physical street address in the U.S.,^[15] (2) have 21 or more full-time employees,^[16] and (3) have more than $5 million in annual gross receipts or sales as reported on the business's prior year's filed federal tax return.^[17] As a matter of logical inference, it bears note, that except for an entity that is a wholly owned subsidiary of an exempt entity, all business...