The Corporate Transparency Act (CTA) requires “reporting companies” to report certain beneficial ownership information (BOI) to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) in order to enhance corporate transparency in the United States.

As part four of a series highlighting the material provisions of the CTA, this article discusses legislative and judicial action, as well as potential penalties for noncompliance, in order to assist businesses with CTA compliance.

Legislative and Judicial Action

While there have been a number of cases brought to the court system challenging the CTA, the most notable is National Small Business United, et al. v. Yellen, et al., United States District Court, Northern District of Alabama, brought in November 2022 and appealed to the United States Court of Appeals for the Eleventh Circuit. This case is currently pending before the Eleventh Circuit, and the order applies only to Plaintiffs in this litigation. In March 2024, FinCEN reiterated the application of the order only to the Plaintiffs named in the litigation, confirming that the CTA would be enforced as normal against companies that are not plaintiffs to this case. Further, although the United States Congress has seen the introduction of H.R. 8147 (“Repealing Big Brother Overreach Act”) and its companion bill S. 4297 seeking to repeal the CTA, as well as H.R. 7963 (“Small Business Red Tape Relief Act of 2024”), which seeks further education for small businesses on the requirements of the CTA, no significant action has been taken on any bill. Therefore, any company that falls under the reporting company definition, without an applicable exemption, should make its BOI filings pursuant to the CTA deadlines.

Civil and Criminal Penalties for Non-Compliance

The CTA imposes both civil and criminal penalties for certain reporting violations, and both individuals and corporate entities can be held liable for violations.

Specifically, the CTA makes it unlawful for any person to (1) willfully provide, or attempt to provide, false or fraudulent beneficial ownership information or (2) willfully fail to report complete or updated beneficial ownership information. Violators are subject to a civil penalty of up to $500 per day for each day a violation continues. Violators may also be subject to criminal penalties of up to $10,000 or two years in prison. However, the Final Rules provide that no civil or criminal penalties will be imposed for submitting inaccurate information if a correction is filed no later than 90 days after the submission of the inaccurate information.

Next Steps

Any “reporting company” should establish procedures to identify and verify the beneficial owners, maintain accurate records, and submit timely reports as required under the CTA. Considering FinCEN’s broad interpretation of “substantial control” and “ownership interests,” and in light of the apparent legislative intent to require disclosure, reporting companies with more complex ownership structure may want to consider consulting with a legal or other professional well-versed in the CTA to assist in determining which individuals must be reported as beneficial owners.

For more information, FinCEN issued a helpful Small Entity Compliance Guide in December 2023, which you may access by clicking here, and continues to provide helpful guidance through its Frequently Asked Questions, which you may access by clicking here. FinCEN has also created a webpage for Beneficial Ownership Information (here) and reports may access the BOI E-Filing system (here) if you would like to file your report yourself. You may also contact your Burr & Forman attorney with any questions, for assistance with filing, or for more information about the issues discussed in this Alert.

Click here to read Part I, here to read Part II, and here to read Part III.