The Corporate Transparency Act (CTA) has introduced significant changes to the way businesses must report ownership information to the U.S. Department of the Treasury. While the Treasury has asserted that it will not enforce penalties for noncompliance due to ongoing litigation, and the current political climate, the law remains intact. The deadline for filing, set for March 21, 2024, is fast approaching, and companies are left with a critical decision about whether to comply with the reporting requirements. Although enforcement of penalties may not be immediate, failure to report could still expose businesses to risks and potential liabilities, including the breach of contractual obligations.
Why Compliance is Still Essential
Although the Treasury Department has stated that it will not enforce penalties for CTA violations, businesses should proceed with caution. The CTA’s provisions remain the law, and its reporting requirements have not been suspended. The March 21, 2024 deadline for filing beneficial ownership information with the Financial Crimes Enforcement Network (FinCEN) is still very much in effect. While the government may not enforce penalties right now, businesses should be aware that the CTA could potentially become a more active enforcement tool in the future, especially as litigation plays out.
Beyond the risk of future enforcement, there is also the matter of existing contractual covenants. Many financing agreements and other contracts require businesses to comply with all applicable laws, including the CTA. If a business chooses not to comply, it could risk breaching those covenants, which may lead to financial penalties or other legal ramifications. In this case, it is often safer to report the information as required rather than take the risk of non-compliance, even when penalties are not immediately enforceable.
Privacy Concerns and the CTA
One common concern raised by business owners is the potential invasion of privacy under the CTA, particularly regarding the disclosure of personal information like addresses and driver’s license details. However, it’s important to note that governmental agencies have historically had access to certain personal data through other means. For example, individuals' addresses and driver's licenses have long been available to governmental agencies as part of standard regulatory and legal processes. The CTA may expand this access to include beneficial ownership information, but it does not introduce an entirely new practice of governmental data collection. Businesses must weigh the potential privacy concerns against the risk of non-compliance, particularly when it comes to fulfilling legal obligations. I am not necessarily saying that failure to comply equates to tin foil as a hat, but at the end of the day, big brother is already watching you.
A Practical Approach
In my practice, I have chosen to comply with the CTA’s reporting requirements for every entity I create. My firm understands the importance of adhering to legal frameworks to protect our clients from potential liabilities, and we strive to make the reporting process as seamless as possible. However, we also respect the autonomy of our clients in making decisions about their compliance. If a client chooses not to comply with the CTA’s reporting requirements, they are welcome to advise us accordingly, and we will follow their direction. We believe that businesses should have the final say on whether to report, but it is our responsibility to ensure they are fully informed of the potential risks involved.
Conclusion and Key Takeaways
As the deadline for CTA reporting draws near, businesses must consider the implications of both noncompliance and privacy concerns. While the Treasury Department’s current stance on enforcement may offer temporary relief, the law remains in effect, and businesses may still face consequences down the road, including breaches of contractual obligations. For these reasons, reporting is the safest course of action.
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