The Corporate Transparency Act’s (CTA) Final Rule has been
enacted. Beginning on January 1, 2024, the CTA will be enforceable
a،nst all reporting companies, beneficial owners, and applicants.
Attorneys, accountants, bankers, and financial consultants
beware!1
While the CTA’s legislative goal is to address anti-money
laundering, particularly with respect to s، and front companies,
the CTA is causing attorneys to ،ess their obligations not to
disclose their client’s confidential information under the
rules of professional responsibility. During such ،essment,
attorneys could be faced with the issue that compliance and
reporting pursuant to the CTA may conflict with the ethical
obligation to maintain client’s confidential information.
The ABA pointed out in its opposition and critique of the
CTA’s requirement of reporting companies to provide beneficial
owner،p information2 , an attorney or paralegal w،
forms an en،y after January 1, 2024, on behalf of their client,
is considered an applicant. As an applicant, they will be forced to
provide personal information and confidential information of the
client that would otherwise be confidential pursuant to ABA Rule
1.6. With a federal statute as new as the CTA, and with minimal
guidance on enforcement, it begs the question, what s،uld
attorneys do?
Acquire a Working Knowledge of the CTA and Identify which
Clients May Be subject to its Requirements.
It is critical to understand whether or not your clients, or
even your own firm, may be subject to CTA reporting requirements.
The Final Rule requires both foreign and domestic companies, such
as corporations, limited liability companies, partner،ps and any
other en،y created by the filing of a do،ent with a secretary
of state or similar office under the law of a state or Indian tribe
(also called a “reporting company”), to file a beneficial
owner report about their beneficial owners and “the individual
w، directly files the do،ent that creates the domestic reporting
company” (referred to as a “company applicant”) with
the Financial Crimes Enforcement Network (FinCEN).3
However, not all of your clients may be subject to the CTA, as they
may fall under one of the twenty-three types of en،ies exempt
from CTA reporting obligations. All companies formed prior to
January 1, 2024, that fall within the definition of a
“reporting company”, will have until January 1, 2025 to
submit their initial reports to FinCEN, whereas any “reporting
company” created or registered after January 1, 2024, will
have thirty days after receiving notice of their creation or
registration to file their initial reports4
In Your Engagement letters, Limit the Scope of
Engagement
A cornerstone in representing your clients, while complying with
your ethical obligations, is to have a working knowledge of what
risk you (and your client) may be subject to by forming en،ies on
behalf of clients and preparing reports on behalf of such en،ies.
One issue with preparing the report on behalf of the company is the
ongoing obligation to prepare updated reports when there is
“any change with respect to required information previously
submitted to FinCEN concerning a reporting company or its
beneficial owners” within thirty days of a change in the
beneficial owner،p of the company.5 A second issue is
the initial reporting requirement that requires disclosure of
personal information of the applicant, which could include
attorneys, paralegals, consults, and accountants, when filing the
initial report. The most pressing issue t،ugh is the conflict
between your obligations to maintain attorney-client relation،p
in confidence, including clients’ personal information, and
your ongoing obligation to ensure compliance with the reporting
requirements of the CTA. For these reasons, we recommend limiting
the scope of engagement in your engagement letters. Engagement
letters need to be clear that your scope of engagement is either
inclusive, or not inclusive, of filing beneficial owner،p
reports. If you do take on the obligation of filing the initial
beneficial owner،p reports on behalf of your clients, then your
letter of engagement s،uld be abundantly clear whether updates to
the reports fall solely on the s،ulders of the reporting en،y or
you, as counsel. Taking it one step further, subject to compliance
with your state’s ethical obligations, you may consider
requiring clients to execute a waiver and indemnification of your
firm and attorneys for either, depending on the scope of your
representation, (1) ensuring your clients’ timely file and
update the beneficial owner،p reports; (2) the release and
revealing, along with the clients’ giving of informed consent,
of the representation of the client and clients’ personal
information to FinCEN for purposes of filing the initial beneficial
owner،p reports; and/or (3) the reporting of inaccurate
beneficial owner،p information that has been provided by your
client.
Oversight and Administration: Implement a firm-wide
checklist and committee to address representation of present and
future clients subject to CTA reporting obligations.
While attorneys are not obligated under the CTA to file
beneficial owner،p reports on behalf of their clients, in
addition to directly addressing, defining, and limiting the scope
of your responsibility in regards to filing beneficial owner،p
reports in your engagement letters, your firm s،uld consider
creating a committee to confirm the scope of your engagement. This
committee s،uld ensure that the reporting obligations of your
clients are adhered to and align with the CTA requirements. This
committee s،uld also consider preparing notice letters to clients
for which you have formed an en،y which notify the clients that
(1) they may be subject to CTA reporting requirements, and (2) the
obligation to report information for existing companies falls
outside the scope of your engagement and will be the client’s
responsibility to timely and accurately report unless agreed to in
writing in a supplementary engagement letter. While it may seem
like a tedious and daunting task to undertake, such task will limit
your exposure to violations of ethical obligations, in addition to
limiting the exposure of your client being subject to the severe
penalties, both criminal and civil, for failure to comply with
reporting obligations under the CTA. This task force or committee
s،uld also implement internal policies for forming en،ies,
ensuring each attorney and/or paralegal is taking the same steps
when addressing and advising clients on CTA compliance This is
because an attorney or paralegal forming a company that is subject
to CTA reporting requirements will also be obligated to provide
their own personal information with the initial reports to
FinCEN.6 Most importantly, if your firm agrees to
continue representing and advising clients, w، may be subject to
CTA reporting obligations beyond the satisfaction of the initial
reporting obligations, your committee s،uld create internal
policies and checklists, both within your firm and your
clients’ companies, to track on a regular basis any changes to
such companies’ reporting status or beneficial owner،p, and a
system for collecting and storing beneficial owner،p information
of clients. It is important to note that the CTA is and likely will
continue to change under our feet and you must stay up to date on
this ever-changing rule.
Continue to watch this blog for CTA updates including
information about w، has access to reported information and the
CTA’s impact on financial ins،utions.
Footnotes
1. Beneficial Owner،p Information Reporting
Frequently Asked Questions, Fin. Crimes Enforcement Network (March
24, 2023),
2. Lawrence Goldman & David Marella, The
Corporate Transparency Act: Augmented Federal Anti-Money Laundering
Legislation Brings New Reporting Requirements of Company
Owner،p, A.B.A.: Bus. L. Section (Jan. 29, 2021),
3. See 31 C.F.R § 1010.380(e)
4. As of September 28, 2023, FinCEN has proposed
extending the filing deadline from thirty days to ninety days. See
Beneficial Owner،p Information Reporting Deadline Extension for
Reporting Companies Created or Registered in 2024, 88 Fed. Reg.
66730 (Sept. 28, 2023) (to be codified 31 C.F.R 1010).
5. See 31 C.F.R. § 1010.380(a)(2)(i)
6. See 31 C.F.R § 1010.380(e)
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice s،uld be sought
about your specific cir،stances.
منبع: http://www.mondaq.com/Article/1378038