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Small businesses must prepare to file their beneficial ownership information with the Financial Crimes Enforcement Network (FinCEN), following another U-turn on the Corporate Transparency Act (CTA).
Last week, a District Court judge in Texas overturned a nationwide injunction on the enforcement of the CTA that was issued by another Texas judge in December last year.
The US government, led by the Department of the Treasury, promptly appealed against the injunction, and called on the Supreme Court to intervene to overturn it.
In January, as covered by Vixio, the Supreme Court reinstated the CTA but did not reinstate its implementing regulations, which empower FinCEN to enforce the mandatory reporting of beneficial ownership information.
Following the Supreme Court decision, compliance with the CTA’s reporting requirements was made "voluntary", subject to the outcome of ongoing appeals.
Last week’s decision lifts the injunction on the enforcement of the implementing regulations, meaning that compliance with the CTA is once again mandatory.
However, given the disruption to the law’s original timeframe, FinCEN has granted a 30-day extension to the reporting deadline for most companies.
For these companies, the beneficial ownership information they are required to file under the CTA must be submitted by March 31.
Other companies, such as those deemed to pose the “most significant” national security risks, must file sooner, while others, such as those qualifying for disaster relief, may file later.
The last salvo in the battle of the CTA?
The CTA was enacted by Congress in 2021 to prevent the use of US small businesses in money laundering and terrorist financing schemes.
Under the CTA, all companies with up to 20 employees and $5m in revenue are required to report information about their beneficial owners to FinCEN.
Beneficial owners are defined as individuals who exercise substantial control over the company or who own or control 25 percent of its ownership interests.
These individuals are required to report their names, dates of birth, addresses and unique identifying numbers (e.g., driver’s licence or passport numbers) to FinCEN.
Failure to comply with the reporting requirements can result in fines of up to $10,000 per violation, felony charges and up to two years in prison.
Judge Amos Mazzant, who issued the original injunction against the law, described it as “unprecedented in its breadth” and an expansion of federal power “beyond constitutional limits”.
The CTA “mandates the disclosure of personal information from millions of private entities”, he said, “while intruding on an area of traditional state concern”.
Many small business associations continue to oppose the law. These include the National Federation of Independent Business (NFIB), which believes that 32m businesses are covered by the CTA.
“NFIB is against the unnecessary and intrusive reporting requirements forcing small businesses to share private information to a new database available to government agencies and foreign governments without a subpoena or warrant,” it said.
“NFIB is actively working to overturn the regulation in federal court and repeal the measure in Congress.”
The National Small Business Association (NSBA) issued a similar statement following last week’s decision.
“This latest court action creates even more uncertainty for our members and the millions of small businesses we represent,” said Todd McCracken, CEO and president of the NSBA.
“This burdensome rule could result in well-intending, but justifiably confused, small businesses facing fines up to $591 per DAY and up to two years of jail time.”
In February, as noted by McCracken, the House of Representatives voted to pass a law that would postpone the CTA’s reporting requirements for another year. However, the Senate has yet to vote on the law.
“NSBA filed the first lawsuit in the nation against the CTA, and we will continue to pursue every legal avenue to overturn this unconstitutional rule,” said McCracken.
“We will push for Congress to do the right thing and see the CTA for what it truly is: a burden of uncertainty and confusion that will do very little to actually stop money laundering.”
