The Corporate Transparency Act: Part 2
This article is a follow-up to the article titled “The Corporate Transparency Act: New Reporting Obligations Starting in 2024,” which was posted to the Baker Manock & Jensen website earlier this year. In this article, we address (1) recent litigation with respect to the constitutionality of the Corporate Transparency Act (“CTA”) and (2) who has access to the beneficial ownership information (“BOI”) contained in the CTA filings submitted to FinCEN.
Recent Litigation – Bottom Line: The CTA Is Still in Effect (For Now)
Earlier this spring, there was a successful challenge to the constitutionality of the CTA. On March 1, 2024, a federal district court in Alabama ruled the Act to be unconstitutional (National Small Business United et al. v. Yellen et al., No. 5:22-cv-01448, Dkt. 51 (N.D. Ala. 2024)). In a lengthy opinion, the court ruled that Congress exceeded its powers in passing the CTA.
However, reporting entities should not be too quick to write off the CTA. First, the government has appealed the ruling, with oral arguments set for this fall. Additionally, FinCEN has stated that it will continue to enforce the CTA, except as to those individuals and entities who are plaintiffs in National Small Business United (this includes (i) Isaac Winkles, (ii) reporting companies for which Isaac Winkles is the beneficial owner or applicant, (iii) the National Small Business Association, and (iv) members of the National Small Business Association as of March 1, 2024). In other words, unless you were a plaintiff in National Small Business United, the CTA still applies to you, for now.
Who Has Access to My BOI?
Now that reporting entities have begun making their CTA filings, which includes the disclosure of sensitive personal information of its beneficial owners, many have been left wondering who exactly has access to this information and for what purpose. The CTA establishes that BOI is confidential and that FinCEN is authorized to disclose BOI only under specific circumstances to six categories of recipients, as discussed in detail below.
- U.S. Federal agencies engaged in national security, intelligence, or law enforcement activity. The requested BOI must be for use in furtherance of such activity. “Law enforcement activity” includes both criminal and civil investigations and actions, such as actions to impose civil penalties, civil forfeiture actions, and civil enforcement through administrative proceedings.
- U.S. State, local, and Tribal law enforcement agencies. FinCEN may disclose BOI to State, local, and Tribal law enforcement agencies if “a court of competent jurisdiction” has authorized the law enforcement agency to seek the information in a criminal or civil investigation.
- Foreign law enforcement agencies, judges, prosecutors, central authorities, and competent authorities (foreign requesters). FinCEN may disclose BOI to foreign requesters, provided their requests meet certain criteria. Specifically, the foreign request for BOI must be on behalf of a law enforcement agency, prosecutor, or judge of another country, or on behalf of a foreign central authority or foreign competent authority, and: (1) come to FinCEN through an intermediary Federal agency; (2) be for assistance in a law enforcement investigation or prosecution, or for a national security or intelligence activity, authorized under the laws of the foreign country; and (3) either be made under an international treaty, agreement, or convention, or, when no such instrument is available, be an official request by a law enforcement, judicial, or prosecutorial authority of a trusted foreign country.
- Financial institutions using BOI to facilitate compliance with customer due diligence (CDD) requirements under applicable law. This may include any legal requirement or prohibition designed to counter money laundering or the financing of terrorism, or to safeguard the national security of the United States, to comply with which it is reasonably necessary for a financial institution to obtain or verify beneficial ownership information of a legal entity customer. The financial institution requesting the BOI must have the relevant reporting company’s consent for such disclosure.
- Federal functional regulators and other appropriate regulatory agencies acting in a supervisory capacity assessing financial institutions for compliance with CDD requirements under applicable law. In keeping with the CTA, such regulators may only access BOI that financial institutions they supervise received from FinCEN, and may only use the information to assess, supervise, enforce, or otherwise determine the compliance of those financial institutions with customer due diligence requirements as mentioned on the previous slide
- Treasury officers and employees. The CTA provides Treasury with a unique degree of access to BOI, making the information available to any Treasury officer or employee (1) whose official duties require BOI inspection or disclosure, or (2) for tax administration.
Stay Tuned for Additional Updates
Stay tuned for additional updates with respect to CTA reporting, as BMJ will continue to monitor ongoing litigation, as well as new guidance issued by FinCEN.
Disclaimer
This Legal Update / Bulletin is for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. This update should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.
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