Tuesday, April 20, 2021
Business Law Today, the American bar Association's business law magazine, has published a super guide to The Corporate Transparency Act, which became effective earlier this year. The guide comes in the form of an article, "The Corporate Transparency Act – Preparing for the Federal Database of Beneficial Ownership Information," co-authored by Robert W. Downes, Scott E. Ludwig, Thomas E. Rutledge, and Laurie A. Smiley. The article reviews the act and clarifies a number of its key provisions. The following background is excerpted from the introduction of the article:
The Corporate Transparency Act requires certain business entities (each defined as a “reporting company”) to file, in the absence of an exemption, information on their “beneficial owners” with the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of Treasury (“Treasury”). The information will not be publicly available, but FinCEN is authorized to disclose the information:
- to U.S. federal law enforcement agencies,
- with court approval, to certain other enforcement agencies to non-U.S. law enforcement agencies, prosecutors or judges based upon a request of a U.S. federal law enforcement agency, and
- with consent of the reporting company, to financial institutions and their regulators.
The Corporate Transparency Act represents the culmination of more than a decade of congressional efforts to implement beneficial ownership reporting for business entities. When fully implemented in 2023, it will create a database of beneficial ownership information within FinCEN. The purpose of the database is to provide the resources to “crack down on anonymous shell companies, which have long been the vehicle of choice for money launderers, terrorists, and criminals.” Prior to the implementation of the Corporate Transparency Act, the burden of collecting beneficial ownership information fell on financial institutions, which are required to identify and verify beneficial owners through the Bank Secrecy Act’s customer due diligence requirements. The Corporate Transparency Act will shift the collection burden from financial institutions to the reporting companies and will impose stringent penalties for willful non-compliance and unauthorized disclosures.
The Secretary of the Treasury is required to prescribe regulations under the Corporate Transparency Act by January 1, 2022 (one year after the date of enactment). It is expected that any implementing regulations will be promulgated by FinCEN pursuant to a delegation of authority from the Secretary of the Treasury. The effective date of those regulations will govern the timing for filing reports under the Corporate Transparency Act.
I am grateful to the co-authors (two of whom are friends and ABA colleagues) for providing this helpful resource. Now that business firms, rather than financial institutions, are bearing the burdens of disclosure in this space, it will be important for business lawyers to become familiar with the law and begin to develop best practices for its effective implementation. I intend to provide updates in this space.