The Corporate Transparency Act (CTA) came into effect on January 1, 2024, requiring certain entities to report beneficial ownership information (BOI) with the stated aim of combatting money laundering and terrorist financing. Reporting companies that are in existence on the effective date must file their initial reports within one year, while reporting companies created after the effective date have just 30 days after receiving notice of their creation or registration.
Under the CTA, attorneys have specific obligations to clients and former clients, particularly those who are involved in small businesses or non-employer firms. The CTA, enacted to enhance transparency in entity structures and ownership, affects a wide range of businesses.
Here's an overview of how these updates impact the responsibilities of attorneys:
- Understanding the Scope of the CTA: The CTA targets both domestic and foreign reporting companies, which include corporations, LLPs, limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships. The few exemptions include securities issuers, domestic governmental authorities, banks, among others.
- Advising on Beneficial Ownership Reporting Requirements: Attorneys must advise clients on their obligations to report BOI. This includes identifying who qualifies as a beneficial owner, which under the CTA, refers to individuals who either exercise "substantial control" over a reporting company or own or control at least 25% of the ownership interests of a reporting company.
- Assisting with Reporting Process: Attorneys may need to assist clients in gathering and reporting the required information to FinCEN (the Orwellian nickname for the US Treasury's Financial Crimes Enforcement Network), which includes the beneficial owners' full legal names, dates of birth, addresses, unique identifying numbers from recognized issuing jurisdictions, and a photo of the identification document. Alternatively, an individual may provide a "FinCEN identifier" if they file their information directly with FinCEN.
- Compliance and Advisory Services: Attorneys should offer compliance and advisory services to help clients understand the scope of the CTA, particularly in defining the engagement scope for advisory services. This might include guidance on whether a client falls under the category of a reporting company and how to fulfill the reporting requirements.
- Maintaining Confidentiality and Ethical Considerations: While assisting clients with CTA compliance, attorneys must uphold their ethical duty of confidentiality and avoid conflicts of interest. This is crucial when handling sensitive information required for BOI reporting.
- Keeping Clients Informed and Updated: As the CTA involves new regulations and reporting requirements, attorneys should keep their clients informed about any changes or updates to the law that may affect their businesses. This includes providing guidance on any operational changes that might impact the client's status as a reporting company or the identification of beneficial owners.
- Ongoing Support for Former Clients: If former clients seek advice related to the CTA, attorneys should provide them with accurate and current information, while also considering ongoing duties of confidentiality and potential conflicts of interest.
- Staying Informed and Educated: Attorneys should stay abreast of any developments or updates regarding the CTA to offer the most current and accurate advice to their clients. This includes understanding the intricacies of the Act and its potential impacts on different types of businesses.
By understanding these obligations and the intricacies of the CTA, attorneys can effectively advise and assist their clients and former clients, ensuring compliance and avoiding potential legal issues related to the reporting of beneficial ownership information.
But, like any dramatic change in the law, the CTA presents unique risks and opportunities for lawyers.
? Do your engagement agreements reference and disclaim changes in the law after the representation?
? Do you use closing/termination and turn down letters to document the end or lack of the representation?
? If you represent entities or engage in entity creation, do you have systems in place to address the CTA?
? Does your marketing address changes in the law?
The CTA presents an opportunity to audit and update your engagement agreements and closing letters. Additionally, it presents an organic opportunity to solicit current and former clients. ABA Model Rule 7.3 expressly allows direct solicitation of former clients - use it!
While you may not have a continuing duty to update former clients, done with appropriate disclaimers, a former client alert, webinar, or the like could be a 'win win' for both you and your clients.
Let's chat about better practice, less stress.
