Is this Roller Coaster Ride Finally Ending?

Business owners and amusement park enthusiasts alike, welcome to the Corporate Transparency Act (CTA). No law in recent history has proven to be such an emotional rollercoaster for business owners across the country, especially with its threats of severe penalties for non-compliance and the privacy concerns it involves. This bumpy and swerving ride has had nauseating legal challenges, “start and stop” nationwide injunctions, appeals, and has even gotten the U.S. Supreme Court’s attention. So, is the CTA still on the tracks, and if so, what’s a business owner to do? To discern next steps, let’s briefly review the tracks both behind and ahead: how did we get here and what are the possible twists and turns ahead?

The Launch Track: How Did We Get Here?

On January 1, 2021, Congress passed the CTA as part of the Anti-Money Laundering Act of 2020 under the umbrella of the National Defense Authorization Act of 2021 (NDAA). The CTA’s stated principal purpose was to prevent the illicit use of shell and front companies to obfuscate actual ownership and launder money. Before it gained traction, the CTA faced multiple legal challenges and, like the Beast at Kings Island at night, myriad unanticipated twists and turns.

Current Reasoning/Counterarguments

CTA proponents claim the law is needed to combat money laundering, an idea initially receiving bipartisan support in Congress and multiple Presidential administrations. However, even those who championed the legislation soon voiced concern over its implementation. CTA opponents have steadfastly argued that the CTA invades privacy, has unduly harsh penalties, and implicates a multitude of constitutional issues.

Enforcement Mechanics

When Congress passed the CTA, it tapped the Treasury Department, through the Financial Crimes Enforcement Network (FinCEN), to enforce the law. FinCEN’s enforcement of the CTA has become a central question in the topsy-turvy rollout of the law.

Penalties

The CTA’s penalties have been deemed draconian, as it prescribes fines of up to $500 per day or up to $10,000 total and criminal liability of 2 years imprisonment for failing to timely report beneficial ownership information. Most business owners are anxious about the additional administrative burden and potential unauthorized use of their information and would rather avoid the ride. Thus, business owners have actively fought to disarm the CTA and FinCEN, with many taking “a wait and see” approach on reporting and just going along for the ride. This graphic emphasizes where the CTA has been and where it currently stands.

Please Keep Your Arms and Legs Inside the Ride at All Times: A History of the CTA

Looking Forward: Any Gravity-Defying Twists Ahead?

After FinCEN’s latest announcement on March 21^st, U.S. companies and “United States persons,” even those that have beneficial ownership of a foreign reporting companies, will not be subject to reporting requirements moving forward; rather, the CTA’s reporting requirements will only apply to foreign companies registered to do business in the United States, and that is so only as to foreign beneficial owners. Further, President Trump has signaled his support for rolling back the CTA’s enforcement, and at least one bill, the Repealing Big Brother Overreach Act has been introduced (with bipartisan support) to repeal the CTA. Renewed Congressional or Presidential support to implement and enforce the CTA (at least as currently enacted) appears increasingly unlikely. However, some states, such as New York, have passed laws mirroring the CTA. Ohio, Kentucky and Indiana have not proposed any such laws It appears, for now, that this bumpy rollercoaster ride is approaching its stopping point, at least for domestic companies and U.S. persons. For additional CTA updates and guidance, business owners can follow Frost Brown Todd.