In a recent Forbes article by Matthew Erskine, significant developments in the implementation of the Corporate Transparency Act (CTA) were discussed, shedding light on the final rule issued by the Financial Crimes Enforcement Network (FinCEN). This rule, known as the "Access Rule," plays a pivotal role in defining the disclosure and safeguarding of Beneficial Ownership Information (BOI). The article provides a comprehensive analysis of the Access Rule, its implications, the feedback from various stakeholders, and the costs associated with compliance.
Key Points from the Article:
Access Rule Provisions: The Access Rule allows FinCEN to disclose BOI to specified entities such as U.S. federal agencies, law enforcement, foreign law enforcement, financial institutions, and Treasury officers. These recipients are subject to stringent security and confidentiality requirements and are generally prohibited from re-disclosing BOI except under specific circumstances. The rule also imposes civil and criminal penalties for unauthorized use or disclosure of BOI. (BOI is an individual who either directly or indirectly exercises substantial control over the reporting company or owns or controls at least 25% of the reporting company's ownership interests.)
Stakeholder Criticisms:
Banking Trade Groups: Groups like the American Bankers Association (ABA) and the Bank Policy Institute (BPI) have criticized the rule for its limitations on banks' access to the BOI database, questioning the reliability of the BOI and pointing out potential conflicts with the Anti-Money Laundering Act of 2020.
Republican Lawmakers and State Attorneys General: They have raised concerns about the rule's complexity and the efficiency and accuracy of beneficial ownership data access.
Anti-Corruption Advocates: They suggest improvements such as removing the court order requirement for non-federal law enforcement to access the directory and broadening banks' access to the information for anti-money laundering compliance.
Challenges for Law and Accounting Firms: These firms must prepare for the new CTA regulation, understand filing requirements, and be ready for potential penalties for non-compliance. They need to ensure current company records and increase due diligence activities.
Filing Deadlines and Procedures: The original 30-day filing deadline for new reporting companies has been extended to 90 days for entities formed between January 1, 2024, and January 1, 2025. Existing companies have a broader timeframe for filing their FinCEN reports.
Compliance Costs for Small Businesses: Filing a BOI report and retaining legal and accounting counsel can be costly, with estimates suggesting up to $2,615 per entity in the first year and an average compliance cost of around $8,000. Small businesses are estimated to spend an additional $5.6 billion annually on ongoing reporting and compliance.
If you fail to file a report, there are serious consequences: Anyone found to be deliberately disregarding the reporting obligations can face substantial civil fines, accruing up to $500 daily as long as the non-compliance persists. Additionally, criminal sanctions could include a maximum of two years in prison and fines reaching up to $10,000.
Conclusion
The implementation of the Corporate Transparency Act marks a significant shift in the regulatory landscape, especially concerning the management and disclosure of beneficial ownership information. While the Access Rule aims to enhance transparency and combat illicit finance, the response from various stakeholders highlights a series of challenges and inefficiencies.
As the CTA comes into effect, it becomes crucial for all affected parties to adapt to these changes. The feedback from various stakeholders may lead to further refinements in the rule to ensure that it meets its intended objectives without imposing undue burdens on businesses and financial institutions. The coming years will be pivotal in assessing the effectiveness of the CTA in enhancing corporate transparency while balancing the operational and financial impacts on the business community.
Read the full Forbes Article here