In 2024, there was considerable discussion regarding who was required to file a beneficial ownership report and the BOI database in which all these filings would be stored. Also, there remained questions as to what the relevant deadlines were, with the most critical date being the enforcement deadline that passed on January 1, 2025. Subsequent litigation and changes in the presidential administration have since altered these requirements.

What happened to the CTA and the BOI database?

The primary objective of the CTA is to identify the real individuals behind shell companies or entities potentially involved in money laundering. By obtaining information about the actual beneficiaries of financial transactions, governments and law enforcement agencies are better equipped to safeguard innocent people. More specifically, these actions help to keep funds from going to terrorists and drug lords, making safety a priority.

Since the announcement of the rules surrounding the BOI, significant questions have been raised regarding their legality and constitutionality. Concerns were highlighted about the standards being overly broad and not effectively serving their intended purpose. Additional issues included the potential for improper security of information and the inappropriate application of the rule. Despite court-ordered stays in execution up until January 2025, it appeared just a few months ago that the CTA would ultimately come into effect, requiring all businesses within the original class to comply with this filing requirement.

With litigation peppering the courts from local jurisdictions to the United States Supreme Court, it was difficult to clearly see how the future application of the CTA and the BOI database would be applied. As numerous changes were brought forward, most attorneys recommended that their clients prepare for compliance by determining the ownership structure and identifying those individuals who would be required to report. However, in February 2025, lawyers鈥� positions seemed to shift as the administration began to lean toward weakened or little enforcement.

BOI timeline at a quick glance

Here are a few critical moments in the history of the CTA and the BOI database:

• • • January 1, 2024 鈥� The CTA went into effect, requiring reporting companies to file BOI reports with the U.S. Treasury鈥檚 (FinCEN).聽This date stated a year-long timer for companies to get into the swing of reporting, the database, and compliance in general.
    • December 3, 2024 鈥� A nationwide injunction blocked the enforcement of the CTA, halting BOI reporting requirements. This injunction stemmed directly from ongoing litigation in the U.S. District Court for the Eastern District of Texas.
    • December 23, 2024 鈥� The 5th Circuit Court of Appeals lifted the injunction, reinstating the reporting requirements.聽As a result, FinCEN extended the compliance deadline slightly to allow more time for compliance.
    • December 26, 2024 鈥� Three days later, the 5th Circuit reinstated the nationwide injunction, halting the BOI reporting requirements again.
    • January 23, 2025 鈥� The Supreme Court stayed the injunction, allowing FinCEN to enforce the CTA’s BOI reporting requirements once again.
    • February 18, 2025 鈥� FinCEN issued a notice confirming the CTA is back in effect and setting a new compliance deadline of March 21, 2025, for most reporting companies.聽The March 1 date currently remains the deadline for most companies to file initial, updated, or corrected BOI reports.

Going forward from the March 1 compliance deadline, FinCEN has said it will assess its options for further modifying deadlines and may revise the Reporting Rule to reduce the burden for lower-risk entities, especially small businesses.

FinCEN鈥檚 current position is to narrow the scope of BOI reporting requirements under the CTA by taking a look at the rule鈥檚 initial exclusions. The newly proposed rule exempts 鈥渄omestic reporting companies鈥� from compliance with these reporting requirements as well. Despite these changes, 鈥渇oreign reporting companies鈥� are still required to report their BOI to . However, one significant exemption for foreign reporting companies is that they are not required to report the information of any U.S. persons who are beneficial owners.

Where does the BOI database go from here?

Similar to how the CTA and BOI were challenged in court, any new or amended rule is likely to undergo similar examination. Legal discussions regarding ultimate ownership and the interpretation of the law are expected to arise, and consequently, corporate disclosure conditions may differ significantly from what was anticipated on January 1, 2025.

The situation with the current political regime presents uncertainty regarding future developments. While financial institutions are keenly aware of the newly posted rule and anticipate movement in ongoing litigation, it remains unclear whether progress will lead to effective combat against financial crime or if we will continue to face challenges related to money laundering and dishonest brokers.

Despite the confusing nature of the CTA and BOI status, financial risk & fraud professionals will have no choice but to just keep going and fighting the good fight that will keep their eye on where the money is going and where it winds up.

You can find more information on the challenges financial institutions face in fighting money laundering and other financial fraud here.

One concern over these new regulations voiced by compliance professionals is the lack of education on the requirements. This concern stems from a lack of widespread education and information on the new rule. For those enterprises with dealings in the US or those owned by US citizens, a beneficial ownership filing seems rather simple and like an obvious next step. However, this becomes more complicated in cases in which the company is formed in another country, or the owners are based there.

Most individual owners in that situation may not be accustomed to providing personal identifying information, and indeed, may be shocked when they realize how many individuals are considered beneficial owners under the new rule, despite at times being only tangentially related to the enterprise. The persons responsible for filing the report are often concerned about how they are going to get the correct information.

, a partner at the global law firm of Holland & Knight, points out one of the major issues in this situation is the complexity. 鈥淐ross-border legal structures designed to achieve tax efficiency and legal protection tend to be quite complex, so foreign investors need to move quickly and confidentially to determine how to comply with this new obligation to avoid hefty fines and criminal exposure, while preserving as much privacy as the law permits,鈥� he said.

Arista noted that in his practice he has been proactively letting those clients with complex situations know what they would need to do in order to comply. Not every attorney is that proactive, and it is unclear how foreign beneficial owners will learn of this new requirement if they don鈥檛 have a relationship with a US-based law or tax firm.

鈥淚nternational private clients who are beneficial owners of companies in the US need to rush their legal planning to completion to preserve privacy without incurring hefty penalties and criminal exposure,鈥� Arista noted. 鈥淭his advice is both prudent and necessary.鈥�

Five necessary steps

In such a complex situation, there are five basic steps that need to be taken by those enterprises concerned with compliance with the new rule:

1. 1. Consult with an experienced attorney that has expertise with the type of enterprise in question.

1. 2. Establish attorney/client privilege with that lawyer, making sure your business information remains confidential.

1. 3. Have the lawyer analyze the corporate structure and make a beneficial ownership determination.

1. 4. Collect the appropriate information from all individuals who must be reported as beneficial owners.

1. 5. File the report on time to avoid penalties.

While this might seem simple, each step requires time and care to ensure accuracy. Indeed, some of the steps have some delicate intricacies to them. For example, it鈥檚 crucial to make a clear delineation of who the client actually is 鈥� the individual or the company 鈥� and that determination should be made early.

Further, most law firms usually are not in the business of ongoing compliance, and filing into the BOI Reporting Database is not a one-time thing. The filing creates an ongoing obligation to update the information as any changes occur. Some lawyers will file, of course, but there must be a very close relationship with the client to ensure ongoing compliance.

鈥淚 don鈥檛 think the complexity of these entities will go away, as their complexity reflects the complex estate planning and tax laws.鈥�

鈥� Ed Arista

International filings for complex enterprises

In looking at the trajectory of international enterprises, Arista had a very intriguing thought. 鈥淚 don鈥檛 think the complexity of these entities will go away, as their complexity reflects the complex estate planning and tax laws,鈥� he explains. 鈥淚 do think that the companies, banks, and family offices, and maybe even accounting firms will have systems in place to gather information more automatically at the beginning of the relationship and have a system to continually follow up if anything changes. Everyone involved in the filing of a beneficial owner report must have done their due diligence.鈥� In short, the new normal for these complex enterprises will require a bit more meticulous behavior.

In the event that an attorney is not filing for a complex enterprise, they might be looking to their tax professionals to help, especially those that often deal with the IRS and the US Department of Treasury.

鈥淎ccountants are filing Foreign Bank Account Reports with [the Treasury Department鈥檚] Financial Crimes Enforcement Network, which contain financial information. However, beneficial owner reports do not contain any financial information,鈥� Arista says. 鈥淲hat they do contain is the personal data of the individuals who meet the legal definition of being beneficial owners, which makes it more complicated.鈥� Also, an extension to the compliance filing can put tax professionals in the deep end of murky waters.

The American Institute of CPAs has taken the position (at least for their malpractice insurance benefits) that filing these reports may be considered an unauthorized practice of law. This is not a determination that was confirmed by any state bars, but it does give pause to boutique tax & accounting firms about what actions are appropriate. Some accountants in smaller firms may do it, but midsize or large firms are not likely to take such a risk.

Arista, like most attorneys, says he expects that over the next 6 to 12 months, there will be a lot of scrambling to update some corporate structures, especially around who has to be involved in the legal structure. Some entities could be split up because they don鈥檛 want to share information within the whole group. For example, a family business may split into separate entities in order to provide more privacy.

After the issuance of a summary judgment in an Alabama federal district court in , businesses are questioning their obligation to comply. And there are also concerns over the constitutionality of the BOI Reporting Database. This ruling has already been appealed, and attorneys like Arista believe reporting companies should continue gathering information for timely filing and comply with CTA鈥檚 reporting requirements.

Over the next year, the legal battle over the constitutionality of the database will move though the appropriate judicial and regulatory channels. After the legal battle is completed, businesses will be left with this additional requirement as the time continues to tick away for entities to comply with this new standard. With more than 32 million current enterprises 鈥� along with 5 million new ones estimated to be created each year 鈥� being proactive is going to be key. While 2024 will be an important year in this regard, it will also serve as the guide for years to come.

You can find more of Ed Artista鈥檚 here.

Unfortunately, in this case, the efforts to thwart one type of financial crime seems to have opened the door for other types of crime that target a different class of victim.

The CTA requires the U.S. Treasury鈥檚 Financial Crimes Enforcement Network (FinCEN) to collect beneficial ownership information, essentially identifying the true owners of an organization. Failure to comply with the filing standards can result in possible fines and imprisonment. A major question, however, is whether small businesses were trained or advised on the need for compliance or the proper methods to get in and stay in compliance. Another question arose about whether this process is safe from hacking or data theft.

Unlike their larger counterparts, small businesses often do not have separate compliance departments to keep them updated on filing requirements with the government. Most businesses rely on word of mouth, mentorship programs, or small business associations 鈥� such as the National Federation of Independent Businesses (NFIB) and National Small Business United (NSBU) 鈥� to keep up with the requirements.

In cases in which there are newer rules or requirements, FinCEN has to ensure that it is getting the word out that additional filings are necessary, which can often be done through online notices. However, using online communications as the primary notice method leaves an opening for nefarious actors to collect information that can be used in future scams.

Before the Beneficial Ownership Information (BOI) Database went live, there were scams and rumors of scams surrounding the CTA and the database. These scams were so prevalent that FinCEN had to make an official alert to the scam before it was even able to open the database.

A lack of clear guidance and training coupled with a rush to open the database was only compounded by an untested system. Quite simply, before January 1, it was unclear what the form was or even what it would look like. Individuals in the compliance and financial crimes community could only speculate what would happen next, with many surprised that any action was taken on the self-imposed deadline.

While pushing forward, FinCEN did make an effort to publish basic information on obligations to submit beneficial ownership. Their notices went out on their website, YouTube, LinkedIn, and several other business-focused social media channels. However, the success of these notices was questionable at best. Using the NFIB as a sample population, they found an overwhelming portion of it membership (90%) had never heard of the reporting requirements.

An opening for scammers

Indeed, the lack of widespread training combined with the lack of transparency in the opening of the BOI database is contributing to confusion, especially among smaller businesses. And as mentioned, it also creates opportunities for scammers to collect valuable information, especially from NFIB members, which may be more susceptible to sophisticated scams. Among the most pervasive scams are:

• • • Filing company scams 鈥� False companies can position themselves as intermediaries to file the form at a cost to the business owner. These fake intermediary companies not only get the initial fee but can sell personally identifying information on the black market. Often, they also fail to follow up on any obligations after the initial filing.
    • False websites 鈥� Illicit actor set up websites that impersonate FinCEN, often copying even the stamps and logo. This gives the scammers access to businesses鈥� information. These sites also gain access to businesses鈥� information and never fulfill the obligation of the business to file.
    • Threatening letters & emails 鈥� Letters or emails are sent out claiming to be from FinCEN or a fake government agency associated with FinCEN. These communications are often very threatening, and some of the more sophisticated letters use QR Codes that are a misdirection and can result in information being shared.
    • Phone scams 鈥� Phone calls offering business help to file over the phone. The calls range from friendly reminders to threats of enforcement and, if successful, usually end with individuals鈥� information on the black market.

Small businesses now must be more discerning about the notices they receive as little can be done to intercept the scams. The more frustrating part is that had action been taken before the implementation of the BOI Database, some of this confusion could have been avoided. At this point, the cost of these scams are incalculable, but clearly the burden for avoiding them and complying with legitimate filing rules will fall on the business owners themselves.

Litigation further muddies the waters

In response to the BOI Database going live, the NFIB filed a lawsuit in Texas, questioning the constitutionality of the CTA. The filing follows similar logic to that of the NSBU鈥檚 previous suit, which received a judgment from a federal court in Alabama in March declaring the BOI Database unconstitutional. That judgment currently is under appeal.

NFIB has also gone a step further to support Sen. Tommy Tuberville (R-Ala.) and Rep. Warren Davidson (R-Ohio) in moving to repeal the CTA. More moderate action is being undertaken by Rep. Zach Nunn (R-Iowa), who introduced the bipartisan Small Business Red Tape Relief Act to hold FinCEN accountable for educating businesses on these requirements.

While it is unclear what will come of the BOI Database, it is very unlikely that it will go away completely. The most prudent option for business owners of all sizes is to comply as best they can with the current rules until the final ruling 鈥� and ultimate fate of this endeavor 鈥� is determined.

You can find more on strategies here.

罢丑别听 on the US beneficial ownership information reporting requirement cannot be known at present, as the government is expected to appeal, although a Treasury Department official said that the department was complying with the court’s injunction.

“The Government says that the CTA is within Congress’ broad powers to regulate commerce, oversee foreign affairs and national security, and impose taxes and related regulations,” Judge Liles C. Burke wrote in the ruling, issued March 1. “The Government’s arguments are not supported by precedent. Because the CTA exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress policy goals.”

In short, Burke’s ruling suggested that there was not a clear enough case that the CTA was supported on the grounds of national security. Judge Burke’s ruling was the product of a legal challenge brought by the National Small Business Association (NSBA) and one of its members against the Secretary of the U.S. Treasury Department.

Treasury’s CTA implementation

Treasury’s Financial Crimes Enforcement Network (FinCEN) has written rules implementing the CTA’s聽聽and dictating聽聽to the beneficial ownership information held in the database.

FinCEN’s rule defines “beneficial owner” as “any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns or controls at least聽25聽percent of the ownership interests of such reporting company.” Tens of millions of entities, many of them small businesses, are affected by the reporting requirement, which aims to unmask the owners of complex legal entities and make it harder for criminals to abuse shell companies.

FinCEN began collecting ownership information on January 1, with plans to allow high-priority government authorities to access the data this year. It is not immediately clear, however, to what degree information collection and dissemination will be affected by Judge Burke’s decision.

The order “only applied to enjoin the CTA’s reporting requirements as to the plaintiffs, including NSBA member entities across the country,” said Thomas H. Lee, the lawyer who challenged the act on behalf of the NSBA. Lee is with Hughes Hubbard & Reed in New York. “The government may move for a stay pending appeal, but it has not yet filed.”

When asked, a Treasury official said that “Congress overwhelmingly voted to enact the bipartisan (CTA)鈥� to crack down on illicit shell companies and combat financial crime. We are complying with the Court’s injunction and refer you to [the Department of Justice] for any further information about the case.” The Department of Justice did not immediately return a request for comment.

Last year, the nonpartisan FACT Coalition joined Transparency International U.S. and small business group, Main Street Alliance, to file an聽聽in support of the CTA. That brief emphasized the law’s core national security function and the limited nature of the information being collected.

鈥淧ro-crime, pro-drug cartel, pro-fentanyl ruling鈥�

Ian Gary, executive director of the FACT Coalition, said Judge Burke’s order “is a pro-crime, pro-drug cartel, pro-fentanyl ruling which undermines the rule of law and allows criminals to use anonymous shell companies to hide their dirty money from law enforcement. Close to a million law-abiding companies have already complied with the law, and this ruling should be stayed and overturned on appeal,” Gary said in a statement.

Zorka Milin, policy director at the FACT Coalition, concurred, adding: “We urge the government to promptly appeal and to request to stay the district court’s injunction pending appeal.”

Peter Djinis, a former regulatory policy official with FinCEN, said he does “not find the court’s opinion persuasive,” adding “I will wait and see how this develops through the inevitable appellate process. This certainly throws a monkey wrench into the long-delayed implementation of the Corporate Transparency Act.”

For more on the beneficial ownership database, listen toon Spotify

This database adds a step in the process of setting up a business, requiring business owners to give information about the company鈥檚 beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Treasury. This information can be used in future investigations and is expected to provide a greater level of transparency into companies鈥� true ownership.

In a new report from the 成人VR视频 Institute, US Beneficial Ownership Rules: Reporting, compliance & access, we discuss the origins of the BOI Database and how it is going to be used to better fight against financial fraud and money laundering.

As designed, FinCEN is using this database to collect the beneficial ownership as required by that was enacted by Congress as part of the . For its part in the process, FinCEN has remained tightlipped about the database until the very end. There was no early access to the filing portion and only sporadic updates to a lengthy Frequently Asked Questions page. There was also no advance use of any chatbot or other features.

The BOI Database was met with curiosity, skepticism, and controversy by many industry experts, many of whom had their own ideas on exactly how the information would be collected and what might lie ahead. One of the biggest controversies was the simple question of would it work? Unfortunately, there was no real reassurance given.

Some experts estimated that there was no way that the system could work if there was no stress test or unless the process included the proper backend workers. This question is still something of a gray area, and only a fraction of the millions of businesses required to file have actually begun the filing process.

Another huge issue at the time of launch that is detailed in the report is the question of whether the BOI Database would be secure enough and protect the personally identifying information being collected. This stems not just from standard cybersecurity concerns, but from legitimate threats and warnings. While FinCEN was remaining silent about the process and the database, some scammers began to make efforts to collect personal information through phishing schemes. This was so rampant, that a red-flag warning was issued on the official website warning about these scams. Issues like this do little to gain the confidence of an already skeptical public about an unknown database with unknown testing.

In addition to these concerns, there was no clarity about which parties will have access to this private information, when they will get access, and what they could do with it once they have it. This lack of clear information was compounded by FinCEN鈥檚 inaction, which included waiting until the proverbial 11^th hour to release a final rule about which parties would have access to the database. The rule release, and the briefing that accompanied it, offered a very broad timing for access to begin and lacked any further depth.

The purpose of the CTA was to close loopholes that could be exploited to evade taxes or launder money by entities doing business in the United States. Many other nations, including the United Kingdon, Canada, Australia, France, South Africa, and the European Union, have all taken strides to close these loopholes. As the geopolitical landscape changes, it becomes more important for all nations to take these steps to limit nefarious actors access to funds.

In ideal conditions, the BOI Database would allow proper enforcement of everything from tax codes to sanctions. In this ideal situation, the financial penalties and prison sentences would be enough to deter any misuse of the US financial system for illicit ends.

In reality, however, there is a long way to go. There has to be clarity on how to properly use and enforce the BOI Database, and the new rules must be reconciled with current due diligence standards. While so much has been done, as the report point out, much work remains.

You can download the full report 鈥淯S Beneficial Ownership Rules: Reporting, compliance & access鈥� by filling out the form below:

罢丑别听聽also omits a proposed requirement that financial institutions reserve access exclusively for personnel located within the United States. 罢丑别听, issued in December 2022, envisioned granting access only to entities such as banks, broker-dealers, futures commission merchants, and others that are required to comply with the聽聽issued by the Financial Crimes Enforcement Network (FinCEN), which was established in 2018.

础蝉听, however, FinCEN’s just-issued final rule broadened the ways financial institutions can use the beneficial ownership information (BOI) stored in the US registry. Financial institutions will be able to use BOI for a range of anti-money laundering and sanctions compliance purposes.

“This change will allow financial institutions to use beneficial ownership information obtained from FinCEN for purposes that go beyond compliance with FinCEN’s CDD Rule, including maintaining their anti-money laundering (AML) programs, sanctions screening, and meeting suspicious activity report filing and enhanced due diligence (EDD) requirements,” said Andrea Gacki,聽FinCEN director, during an online media event.

Since the final rule permits registry access for broader AML applications, it also gives access to other firms required to comply with the聽聽(BSA), the primary US AML law. The final rule authorizes FinCEN “to disclose BOI to a broader range of financial institutions consistent with the revised approach taken with respect to the meaning of ‘customer due diligence requirements under applicable law,'” according to the rule. “Accordingly, MSBs and other financial institutions with AML program requirements, such as casinos鈥� would be eligible under the final rule to access the database, subject to appropriate security and confidentiality protocols.”

The document adds, however, that FinCEN has “discretion regarding the scope and timing of access by financial institutions.” And as previously reported, FinCEN will allow access to the database “in phases,” beginning with a pilot program granting access to a handful of key federal agency users starting in 2024, and there is no timeline at present for financial institution access.

Public comments prompted changes

FinCEN’s decision to allow financial institutions to use BOI registry data for purposes other than CDD was a response to concerns expressed in 80 comment letters from members of Congress, financial industry participants, trade associations, corporate transparency advocacy groups, and others, FinCEN鈥檚 Gacki said.

The comment letters also prompted FinCEN to remove a prohibition against offshore access to BOI. “The final rule removes a general requirement that financial institutions limit access to BOI to personnel within the United States,” Gacki explained. In fact, the final rule also requires that financial institutions notify FinCEN within three business days of receiving a demand from a foreign government 鈥� such as a subpoena 鈥� for BOI obtained from FinCEN.

“This notification requirement will alert FinCEN when foreign governments intend to obtain BOI reported to FinCEN outside of the procedures established in the聽, its implementing regulations and protocols,” Gacki said.

Financial institutions must still obtain consent from customers before accessing their BOI in the FinCEN database, she noted, adding that the final rule does not affect existing requirements for financial institutions to collect beneficial ownership from customers pursuant to FinCEN’s CDD Rule.

The latter point was also made in a contemporaneous聽聽issued by FinCEN and bank regulators. Financial institutions will have “direct access” to search the BOI database, but in a “more limited fashion” than the access granted to US government authorities, Gacki said.

During a media call before the final rule’s release, a senior Treasury official was asked whether financial institutions would be able to conduct batch searches of the BOI database to make queries scalable, a concern that AML professionals have expressed.

The Treasury official said that FinCEN “will provide more information in the future” and added, “It is something that we are tracking.”

鈥淢ain takeaway鈥� is that FinCEN responded to industry

FinCEN’s responsiveness to industry concerns about the proposed access rule was noteworthy, said Dan聽Stipano, who spent more than 30 years at the Office of the Comptroller of the Currency in senior legal and enforcement roles.

“My main takeaway is that FinCEN paid close attention to the comments it received on the proposed rule and made changes in line with those comments that significantly improve the final rule,” said Stipano, now a partner with Davis Polk in Washington, D.C. “All of these changes are important to financial institutions and will greatly enhance their ability to use the data for BSA compliance purposes.”

, a significant number of businesses in the United States, specifically reporting companies, must comply with the CTA by filing Beneficial Ownership Information Reports with the Financial Crimes Enforcement Network (FinCEN), which is part of the U.S. Treasury Department.

For tax & accounting firms and Certified Public Accountants (CPAs), understanding and navigating the CTA is crucial due to its . The Act requires businesses to report information related to their owners, officers, and controlling persons; and FinCEN estimates that around 32.6 million businesses will need to comply with the Act in its first year.

Thus, it is important for tax advisors to get up to speed quickly. The proposed penalties for businesses that fail to comply with the CTA or missing filing deadlines include criminal or civil fines and penalties. Financial penalties start at $500 per day of non-compliance, up to $10,000; and criminal penalties could include imprisonment for up to two years.

Tax & accounting firms have long served as advisors to clients whether official or unofficially. That role has expanded tremendously over the last two to three years and will continue even more, especially for firms that service businesses. With the passage of CTA, tax firms will need to be versed in the new rules quickly and accurately because failure to do so can potentially expose the firm to professional liability claims and their clients to possible regulatory problems. This is true for firms that offer tax services related to CTA compliance or if they inadvertently provided advice on the Act.

Even those tax & accounting firms that might just be providing an answer to 鈥渜uick questions鈥� about CTA compliance could find themselves in trouble if the client incurs damages related to their compliance with the Act and then blames their CPA for it.

What to consider?

For tax & accounting firms that decides to offer services related to the CTA, it is essential for them to clearly define the scope of their services in engagement letters, including disclaimers stating that they are not responsible for advising on CTA compliance unless specifically engaged for that purpose. Doing so helps firms to better manage client expectations and mitigate risks.

It is worth noting, however, that for firms newer to offering advisory services and that still may be in habit of providing quick and impromptu advice, they should be cautious about what advice is being given. It is important to know whether the advice is better given by a legal professional instead of a tax professional 鈥� and if the line is blurry, it might be better to air on the side of caution and direct the client to seek legal advice.

When firms and CPAs are considering offering services related to the Act, they should choose how they want to be involved. This can range from providing only administrative support to offering on-going compliance advice and interpretation. Importantly, firms and CPAs should understand the risk profile associated with each service level.

There are significant potential risk exposures for CPAs who provide CTA assistance, including:

1. 1. 1. Bank scrutiny 鈥� Because this Act is part of the Bank Secrecy Act, banks may ask CPAs to confirm clients鈥� compliance by requesting a comfort letter and other supporting information.
      2. Data gathering 鈥� Normally, tax professionals handle a great deal of their clients鈥� data, and data security is already a concern with CTA. CPAs and firms may now have to gather much more information with CTA compliance, which increases how much more data needs protecting. Failure to do so can increase the firms鈥� data security liability exposure.
      3. Potential fraud 鈥� The worst of all situations is if the firm or CPA finds that a client intentionally filed false reports. It goes without saying the tax & accounting firm or CPA associated in any way also may be accused in aiding and abetting the client, which could result in civil or criminal charges.

For tax & accounting firms that have decided they will offer services related to the CTA, becoming knowledgeable about the Act and all the ways they can help keep clients in compliance is only the first step. The second and probably the most important step is coming up with client acceptance and engagement procedures. Having procedures to help identify which clients must comply with which portions of the CTA are necessary.

After CTA-compliant clients have been identified, firms should take extra precautions by ensuring firms maintain detailed documentation of all client interactions, decisions, and representations. This documentation can support services rendered and aid in defending the firm against future claims.

It also goes without saying that tax & accounting service providers should consult with legal professionals that are knowledgeable about federal financial criminal law to best understand how their CTA activities present risk and to make sure any risk is managed effectively. As with any new legislation or regulations, tax practitioners will need to stay updated on all developments including regulatory guidance and case laws related to the Act.

Clearly, the Corporate Transparency Act presents opportunities for CPAs and tax & accounting firms to offer new services to clients, representing a significant growth opportunity for their business. However, there could be some potential challenges 鈥� but by staying informed, clearly defining service scopes, maintaining rigorous documentation, and consulting with legal counsel, firms and CPAs could more easily and effectively navigating the complexities of the Act.

“In short, we are going all out to hit all forms of media to educate about beneficial ownership information reporting,” Andrea Gacki, the director of Treasury’s Financial Crimes Enforcement Network (FinCEN), said during the annual event held by the Association of Certified Anti-Money Laundering Specialists (ACAMS).

“Not only will we be leveraging the web and a YouTube series鈥� but also leveraging every other type of outreach 鈥� through our website [and] through partnership with different public affairs outfits 鈥� we are definitely trying to get the message out,” Gacki said, adding that FinCEN will also be working with stakeholders, noting the agency had already “gone on the road, so far, to engage with small businesses in different congressional districts. You can expect that we will continue that and will partner with stakeholder organizations, especially at the Secretary of State level.”

Referencing a document FinCEN released recently aimed at explaining beneficial ownership information (BOI) reporting requirements in easy-to-understand language, Gacki explained that the agency is 鈥渧ery much turning up the volume on getting the word out now that we have our聽听辞耻迟.”

Justine聽Walker, head of global sanctions and risk with ACAMS, said banks would be glad to hear that FinCEN is taking charge of BOI reporting education. “I think that’s going to be a relief to a lot of people in this room, because I think the feeling 鈥� the worry 鈥� was that financial institutions would be the ones having to communicate that,” Walker said.

FinCEN has faced congressional criticism over a perceived lack of public education about the new requirement.

Starting in 2024, many entities created in or registered to do business in the United States will be required to report information about their聽beneficial聽owners聽鈥� the individuals who ultimately own or control a company聽鈥� to聽FinCEN.聽And FinCEN’s聽聽requiring BOI reporting was issued in September 2022, pursuant to the聽, which forms part of the聽. Congress enacted the CTA to combat the abuse of front companies by criminals and those illicit actors seeking to evade sanctions.

BOI verification

Walker also asked Gacki for FinCEN’s perspective on the problem of verifying BOI that gets reported to the Treasury, noting that financial institutions have expressed concerns that they will be responsible for verifying the data reported to FinCEN, thereby adding to their anti-money laundering (AML) burden.

“Even if verification is not part of the rulemaking 鈥� and people have not been shy about letting us know their views about verification 鈥� I just want to assure you that we’re taking all that in,” Gacki said. “As we pull together this database, I think there is something we have to work through. We feel very strongly that a way to test the validity of the information is a very important part of our job.鈥澛燝acki added that FinCEN’s challenge is “to do so within our means.”

“If only we had unlimited resources and money鈥� [but] we operate in a resource-constrained world,” she said, echoing a common sentiment among private-sector AML professionals. 鈥淰erification as an objective is something we’re driving toward. We are looking at available data sources, we are looking at what we can do in the process of building this, and we’re also looking at our compliance and enforcement efforts as a means of verification.”

鈥淣othing is finalized, but it’s something that we’re very much focused on, as we build this database.”

‘Watch this space’

Walker noted that for AML professionals, the verification issue was a matter of “watch this space.” Noting that ACAMS will soon release a whitepaper examining the issue based on input from its global network, Walker added: “There are many different dimensions to verification.”

During her remarks, Gacki also said FinCEN will soon be “standing up a dedicated contact center” to answer questions related to the reporting of beneficial ownership.

However, January 1, 2024, is not a statutory deadline or regulation 鈥� it鈥檚 a target date that FinCEN established September 30, 2022, in its final beneficial ownership reporting rule. This means that, if necessary, FinCEN can move the target date to something that is more attainable.

If we take a step back from the CTA and AMLA 2020 target date, you can clearly see what needs to be done before implementation is ready. The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) has several major requirements for completion, and each has its own milestones. Unless each requirement is completed, the programs under the CTA and AMLA 2020 are destined to fail and lead to more confusion for registered companies and financial institutions. What is clearer, in terms of regulation, is that we are far away from the finish line.

Hitting the milestones

The first, and most notable requirement is the completion of a database for . The preliminary requirements for what the database would do were provided in the final reporting rule on September 30, 2022 鈥� but that was the first milestone, not a mark of completion. The database needs to be designed, built, tested, and deployed on a large scale; and there has been no action to indicate that FinCEN is ready to deploy this database.

Another milestone is the finalization of the beneficial ownership access rule. And while there has been discussion around what entities should have access to the database and under what circumstances, this access rule is still under review. In its Spring 2023 regulatory review, FinCEN indicated that it would publish the final rule in September 2023.

And there is a third rule that FinCEN is required to publish: a rule to reconcile the 2016 beneficial ownership rule with these new reporting and access rules. 鈥淲e don’t know whether legal-entity customers are still going to have to provide their beneficial ownership information to the banks under the current 2016 rule, as well as into FinCEN under the new Corporate Transparency Act rules,鈥� explains James Richards, Founder and Principal at RegTech Consulting. 鈥淏anks will need to continue collecting beneficial ownership information at account opening. It鈥檚 very possible that customers will be confused at what they will see as a dual reporting requirement.鈥�

鈥淚 don鈥檛 think anything will end the progress on the database quicker than a data breach. If someone hacks into it and steals 10 million American small business ownership records that would shut the database down in two days.鈥�

Richards also noted that there is no guidance on what financial institutions are to do when there are discrepancies between what has been reported under the 2016 rule and what will be reported under the CTA: 鈥淔ailure to clarify this portion of the rulemaking likely will lead to more even more Suspicious Activity Reports (SARs) than the already record-breaking number that are filed every year. If not clearly enacted, the new rules can lead to inconsistency and a huge volume of defensive SARs filings.

In addition to building the database and promulgating the three rules, the Beneficial Ownership Reporting Form needs to be completed. The original proposed version gave reporting companies the option of reporting 鈥渦nknown鈥� or 鈥渦navailable鈥� for their beneficial owners. After a maelstrom of criticism that these options were not allowed under the statute, FinCEN relented and pulled the proposed form. As of late July 2023, FinCEN has not released a new form.

With all of this, FinCEN needs to hire the staff to keep the database functional; and the agency will also need thousands of professionals on staff to field calls, maintain the database, and provide education to the millions of businesses that will need to submit their beneficial ownership information, as well as to all of their attorneys, financial advisors, and company formation agents that will interact with the database on a regular basis.

From a realistic perspective, even if all the requirements were met today, it is highly unlikely that the milestones related to the dissemination of information and regulations will be able to be completed in any meaningful way before the target date in less than five months. The most concerning part of this is the lack of transparency around the status of completing these requirements.

Changes within FinCEN

The concerns are also compounded by the proverbial changing of the guard at FinCEN. As of July 13, FinCEN’s former Acting Director, Himamauli Das, transitioned out of his role, which is now , current Director of the Office of Foreign Assets Control (OFAC).

Further, it is important not to rush through the completion of these milestones. Failure to properly go through this process leaves individuals, institutions, and corporations vulnerable. 鈥淭he one thing that FinCEN shouldn鈥檛 get wrong is the information security aspect of the database,鈥� Richards explains. 鈥淚 don鈥檛 think anything will end the progress on the database quicker than a data breach. If someone hacks into it and steals 10 million American small business ownership records that would shut the database down in two days.鈥�

Despite the time it will take to launch the database and the pressure to make a target date, protecting personal identifying information is paramount. Indeed, considering where we are with the database for reporting BOI to FinCEN, it would be prudent 鈥� advisable even 鈥� to push back the target date and reassess the milestones that are in place.

Clearly, a coordinated and transparent effort could make great strides toward fulfilling the intentions of the CTA under the AMLA 2020.

You can read of Jim Richards鈥� here.

Congress enacted the transparency legislation as part of the AML Act of 2020. It aims to stem criminal abuse of shell companies by creating a national registry to identify the beneficial owners of complex corporate and legal structures. Slated to be operational on January 1, 2024, the registry will ultimately contain data on tens-of-millions of legal entities.

罢丑别听聽urged the Financial Crimes Enforcement Network (FinCEN) to amend a governing access to the non-public registry. As written, the proposal “deviates from congressional intent by inappropriately restricting financial institution access to and use of (beneficial ownership information, or BOI),” it said.

The proposal’s public comment period ended in mid-February 2022, but not before the American Bankers Association (ABA), an influential trade group, 聽labeling it “fatally flawed” and recommending its withdrawal. The proposed access rule “creates a framework in which banks’聽access聽to the registry will be so limited that it will effectively be useless, resulting in a dual reporting regime for both banks and small businesses,” the ABA said.

The senators’ letter to FinCEN seemed to support elements of the ABA’s position, calling on regulators to ensure that financial institutions can use beneficial ownership information across their anti-money laundering, combating the financing of terrorism (CFT), sanctions-screening, and broader financial crime compliance programs.

Access rule should “track closer” to Congressional intent

Senators Sheldon Whitehouse (D-RI), Chuck Grassley (R-IA), Ron Wyden (D-OR), Marco Rubio (R-FL), and Elizabeth Warren (D-MA) submitted the letter, stating they want FinCEN’s rulemaking to “track closer” to Congress’s intent .

“As drafted, this proposed rule risks impeding financial institutions’ timely access to the beneficial ownership directory,” the senators said. “Once the database is live, financial institutions across the country will immediately begin requesting access to BOI for the 32 million reporting companies in the country. It is essential that FinCEN establish an automated process (ideally one that integrates with existing compliance systems at financial institutions) for fielding and responding to these requests.”

The letter adds: “If FinCEN manually reviews every request from each financial institution, it risks overwhelming the capacity of the agency, generating major delays in the financial system, and undermining the utility of the directory.”

FinCEN takes feedback from public comments on its proposed rule “very seriously” and “are carefully considering all comments as we complete our work,” a FinCEN spokesperson stated. “FinCEN is committed to implementing an effective regime that enhances transparency on who ultimately owns or controls a company and to making this historic beneficial ownership database a highly useful tool for all stakeholders, including financial institutions, and others.”

The senators also urged FinCEN to clarify in the final rule that financial institutions “are not expected to affirmatively obtain new consent from an existing reporting company customer each time a financial institution needs to query the directory for information on such customer 鈥� assuming the customer previously provided the financial institution with its consent to request BOI from FinCEN.

“The current proposal could be read to forbid financial institutions from accessing the directory to assist with most of their , anti-fraud, and sanctions-screening requirements,” the letter also stated. “Congress intended that the directory be ‘highly useful’ to financial institutions, among other authorized users, and the CTA explicitly contemplates that financial institutions will incorporate BOI into their AML/CFT programs.”

Notably, however, the senators’ letter did not address聽all of the ABA’s concerns. It did not, for example, ask FinCEN to allow banks to聽share BOI with bank personnel in foreign jurisdictions, nor did it request聽a safe harbor from liability for financial institutions that use information obtained from the registry.

Other requested amendments

In addition to urging greater registry access for financial institutions, the senators also asked FinCEN to make other adjustments to the proposed access rule, including:

• • • Ensuring that state, local, and tribal law enforcement can effectively access the beneficial ownership directory.
    • Ensuring that beneficial ownership information can be used in court at the conclusion of a case.
    • Nixing and clarifying certain filing requirements that, as drafted, risk slowing investigations, overwhelming FinCEN’s capacities, and/or generating major delays in the financial system.
    • Ensuring that Treasury’s Office of Inspector General and the Comptroller General of the United States have access to the registry.
    • Mandating that FinCEN verifies the beneficial ownership information it receives.
    • Ensuring FinCEN creates clear, concise, and tailored templates, forms, training videos, and step-by-step guides to help authorized recipients request and access the registry.