Legal Thoughts – Episode 2 of the Corporate Transparency Act
COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW | Transcript of Legal Thoughts
Published September 11, 2023
Topic: “FINANCIAL CRIMES ENFORCEMENT NETWORK (FINCen), U.S. Treasury’s Beneficial Ownership Information Reporting Requirements”
My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, contracts, litigation and immigration law firm based in Dallas, Texas.
In addition to myself, we have a Legal Assistant, Leiliane Godeiro, Law Clerks, Ayesha Jain and Mlaah Singh, and Admin Assistants, Ernesto Munoz and Michelle Gutierrez.
On today’s “Legal Thoughts” podcast, our Law Clerk, Mlaah Singh, will be interviewing me on the important topic of: “Beneficial Ownership Information Reports and American Small & Medium Size Business’ Obligations Under the Corporate Transparency Act”. Episode No 2 is a continuation of our Legal Thoughts Podcast Series on Corporate Transparency Act.Today’s episode, we will focus on Beneficial Ownership Information Reports; and, what small and medium size business owners must comply with mandatory reporting requirements.
Hi everyone, my name is Mlaah Singh and I am a Law Clerk at the tax, contracts, litigation and immigration law firm of Coleman Jackson, Professional Corporation. Our law firm is located at 6060 North Central Expressway, Suite 620, right here in Dallas, Texas.
Good afternoon Attorney. Thank you for agreeing to sit with me as we continue our discussion of this hot business law topic! Now, let’s begin our second podcast in our Series dealing with The Financial Crimes Enforcement Network’s enforcement of the Corporate Transparency Act as it relates to certain small and medium size American businesses as you explained in excruciating detail a few weeks ago in our first episode of this series of our law firm’s Legal Thoughts Podcasts. Our listeners who missed Episode One should listen to the first episode published a weeks ago to fully understand this Second Episode; since this Second Episode is a continuation and builds on what Mr. Jackson explained in Episode One about the Corporate Transparency Act and the Anti-Money Laundering Act of 2020.
Attorney Jackson during our last conversation regarding the Corporate Transparency Act was certainly enlightening and somewhat frightening as well. I think the small and medium sized business owners listening to our Legal Thoughts Podcast might have numerous unanswered
Questions. Mr. Jackson, you made crystal clear in your comments in Episode One that a lot of small and medium sized businesses are expected to be impacted by the Corporate Transparency Act. A big question that I have to begin with today is this one: Attorney, exactly how will affected owners of small and medium size companies report their ownership interest?
ATTORNEY ANSWER – QUESTION 1
That is certainly a good question Mlaah to start our Episode 2; and, it is one that will help listeners decipher if they are part of this jurisdiction’s demographic obligated to comply with the Corporate Transparency Act. The short answer is that small and medium size business owners impacted by the Corporate Transparency Act reporting requirements will identify themselves by filing timely Beneficial Ownership Information Reports with the Financial Crimes Enforcement Network which is an agency within the U.S. Department of the Treasury. FinCEN is not the IRS which is also an agency of the Department of Treasury that our audience are likely to be more familiar with when complying with the U.S. States federal tax laws.
Let me try to explain this in more details in simple terms. Mlaah, if an individual’s ownership interest in a required reporting company is less than 25%, that individual would be exempt from the obligation to file a Beneficial Ownership Information Report with the Financial Crimes Enforcement Network. On the other hand, if an individual’s ownership interest in a required reporting company is 25% or greater, that individual would have an obligation to file a Beneficial Ownership Information Report with the Financial Crimes Enforcement Network. Beneficial Owner; therefore, means an individual who owns 25% or more equity interest in a reporting company. The term “reporting company” under the CTA means a business entity structured under any State or Tribal business structuring laws. Such as, business filing articles of organization under the Business Organization Code in Texas and filed with the Texas Secretary of State’s Office; or in other States, businesses filing organizational documents under a similar set of structuring laws. It is extremely important for our podcast audience to understand that each individual within a particular reporting company must file individually a Beneficial Ownership Information Report with FinCEN if they meet the 25% reporting threshold. The BOIR’s are not filed by the entity or at the reporting entity level.
The CTA places the mandatory reporting obligation directly on the individual owners that meets the ownership interest thresholds that I mentioned a short while ago. Repeat, the individual that owns 25% or more equity interest in the reporting company must comply with your reporting obligations under the Corporate Transparency Act. This is a micro- individual reporting of interest requirement; and it turns the Financial Crimes Enforcement Network’s national database into a concentrated network that maps out any and all ‘substantial control’ of small and medium size business enterprises throughout the United States. As I stressed in Episode One, and again now; the term reporting companies include any business entity structured under any State or Tribal business structuring laws, such as corporations, limited liability companies, and other type of entities.
My dear podcast listener; corporate transparency is not limited to businesses structured as corporations. These reporting requirements apply to mom and pop limited liability companies for example. They were not exempted by Congress or FinCEN in enacting the rules to enforce the Corporate Transparency Act. The CTA Beneficial Ownership Information Reporting requirements apply to the smallest required reporting entities. They are not exempt.
Mlaah, as I pointed out in Episode One, FinCEN’s fundamental objective is to classify all substantial owners to fully enact the intent of Congress in enacting the Anti-Money
Laundering Act of 2020 to combat money laundering, tax evasion, tax fraud, terrorist financing, corruption and other nefarious financial crimes committed by American small and medium sized businesses. The Corporate Transparency Act is a part of the Anti-Money Laundering Act of 2020. FinCEN is charged with enforcing the CTA. Shining sunlight on American small and medium sized businesses is what the CTA is all about. This FinCEN national database is designed to show FinCEN, the IRS and others who substantially control American business enterprises.
There are ongoing discussions with respect to access controls, constitutional, and privacy issues associated with FinCEN’s national database. The fundamental policies in Congress enacting these laws and giving the U.S. Department of Treasury these broad enforcement powers is to expose those who own and substantially control American small and medium sized businesses to FinCEN, the IRS and other law enforcement agencies (domestic and foreign) for the good of the United States economy, where American citizens have lost job opportunities, business secrets and know-how and even many Americans have been priced out of real estate markets by concealed purchasers all over the country; for the good of our national security by detecting and preventing illicit financial activity where businesses and owners have concealed their real identities and hidden their criminal activity by using shell business entities and used deception for years in anonymous activity, such as, hidden ownership structuring schemes and like behavior in many industries throughout the country.
INTERVIEWER: Mlaah Singh, Tax Law Clerk
Thank you Attorney. This insight that you shared with our Legal Thoughts podcast audience will definitely help business owners make timely decisions to protect their company under FinCEN’s new regulations. Having this data across businesses within the spectrum that you just mentioned will indeed likely protect this country from small and medium sized businesses engaged in tax fraud, terrorist financing, corruption and other types of activities that diminish economic opportunities and damage our economy and our country more expansively. Who owns American small businesses will now be securely held within the U.S. Treasury’s national database. Now that our audience understands who is impacted by this regulation and why this Act is designed to shine bright lights on business ownership in our country; my next question is this one.
Mr. Jackson, could you please explain in detail what information exactly must be disclosed in a Beneficial Ownership Information Report? What information about these small and medium sized business owners stored in FinCEN’s national database?
ATTORNEY ANSWER – QUESTION TWO
That is an astute question because the types of information required to be disclosed by small and medium sized American business owners and the information stored in FinCEN’s national database goes to heart of whether FinCEN can accomplish its mandate under the Anti-Money
Laundering Act of 2020 to ferret out money launderers, tax fraud artists, tax evaders and others allegedly engaged in financial crimes. It is important for podcast audience to understand that there really isn’t too much information required to be disclosed in a Beneficial Ownership Information Report; but the value of that information for investigatory purposes by FinCEN, the Internal Revenue Service and others could be invaluable in investigating tax fraud, tax evasion and all of the other crimes that law enforcement is trying to expose and uncover. This is a list of the required information that must be reported by Beneficial Owners of Small and Medium Sized American Business impacted by the CTA:
- The Beneficial Owners Legal Name;
- The Beneficial Owner’s Date of Birth;
- The Beneficial Owner’s Residential Address Address;
- The Reporting Company’s Business Address; and
- Government Issued Photo Identification Card, such as, State Driver’;s License, Passport, or other valid identification document.
This document must be uploaded to FinCEN along with the Beneficial Ownership Information Report. Repeat: this type of information, although not extensive, is being collected by FinCEN to carry out its enforcement obligations under the Corporate Transparency Act relating to its efforts to prevent money laundering, tax fraud, tax evasion, terrorist financing and other financial crimes. The required information on the substantial ownership of small and medium sized businesses will be stored on the Financial Crimes Enforcement Network’s national database. Once the impacted small and medium sized business owner complies by giving FinCEN all of the information that I have just mentioned by sending it directly to FinCEN, the impacted small and medium sized business owner will have successfully fulfilled their obligations under the Corporate Transparency Act. I think I should mention here however that FinCEN could have questions concerning the submissions and request additional information or otherwise investigate based on the submissions.
These CTA reporting requirements become effective for business structured after January 1, 2024 on January 1, 2024 and the impacted business owners are required to file their Beneficial Ownership Information Reports within 30 days of their Article of Organization is approved
by the applicable State or Tribal government agency. These CTA reporting requirements become effective for all other impacted businesses on January 1, 2025. In other words, businesses existing or structured before January 1, 2024 have another year to comply. Any required reporting entity and its beneficial owners should make appropriate plans to begin complying with the Beneficial Ownership Information Report requirements right away since the drop deadline for all impacted businesses is January 1st , 2025. This gives beneficial owners in businesses started before January 1, 2024 from around the nation exactly one calendar year to counsel with their legal counselors and advocates to prepare and comply with their obligations under the Corporate Transparency Act.
Finally Mlaah, in answering your question; I think it is very important for me to point out to our Legal Thoughts podcast audience that; although, these Beneficial Ownership Information Reports are to be held within FinCEN’s secure national database, it is extremely important, for everyone to understand who will have access to this information and the procedures or safeguards in place to protect this information. Now these access protocols are not absolutely clear at this time. But it appears that there is a limited number of governmental corporations that may be granted access to specific information by sending an access request to the Financial Crimes Enforcement Network explaining the justification for their request to search FinCEN’s national database of owners of small to medium sized businesses. According to FinCEN’s final rules implementing the CTA; FinCEN will manually reject and accept requests through their
Beneficial Ownership IT system. The rules go on to say that business owners’ information will be securely held and will only be distributed upon consent from both the requestor and the company for their BOI’s to be shared externally.
The Final Rule implementing the CTA says that the corporations and the governmental agencies able to access Beneficial Ownership
Information Reports upon consent are as follows.
– 1. U.S., Federal, State, Local, and Tribal governmental agencies
– 2. Foreign law enforcement agencies, judges, prosecutors, and central authorities
– 3. Financial institutions who request BOIs with the justification of complying with their obligations under the Bank Secrecy Act and other statutes and laws regarding “know your customer banking laws” and the bank’s consumer due diligence requirements. This
includes actions required of these financial institutions under law.
– 4. Federal functional regulators and appropriate regulatory agencies acting in supervisory capacity accessing the financial condition of financial institutions
– 5. Finally, the U.S. Department of Treasury; specifically FinCEN which is the Financial Crimes Enforcement Network and the IRS which is the Internal Revenue Service (the agency charged with the responsibility to enforce America’s federal tax laws).
Finally, FinCEN’s Final Rule implementing the Corporate Transparency Act states that information may be extracted from FinCEN’s national database only for investigative purposes and within the bounds of law enforcement. Beneficial owners may still trust the security of this system as information must be formally and officially approved by the Financial Crimes Enforcement Network before release to the organizations, agencies and others.
INTERVIEWER: Mlaah Singh, Tax Law Clerk
Thank you for that insight Mr. Jackson. The implementation of the Corporate Transparency Act seems to be extremely comprehensive and should improve the United States government in its ability to detect tax fraud, tax evasion and other financial crimes around America. Our viewers, the Attorney, might be wondering what kind of punishment power are given to FinCEN under the Corporate Transparency Act.
Everyone might be wondering what kind of penalties can be imposed on business owners who refuse to comply or file these beneficial ownership information reports? In the third podcast in our series, are you planning to talk about punishment under the CTA? Can you tell our Legal Thoughts Podcast audience what they can expect from our next couple of podcasts in this CTA podcast series (say podcast three and four; what topics will you talk about as it relates to the implementation of the CTA by FinCEN)?
ATTORNEY ANSWER – QUESTION THREE
Okay Mlaah, thank you for teeing up our next Legal Thoughts podcast in this series, which is Episode 3 where I intend to focus on the civil and criminal penalties that can be assessed against violators of the Corporate Transparency Act’s beneficial owner reporting requirements. So, your final question is an excellent question.
Mlaah, given the fact that there are many aspects of this jurisdiction that will impact a large demographic in America I will attempt to answer the following types of questions in Episode 3 in this CTA series of Legal Thoughts:
- What are the penalties for non-willful violations of the Corporate Transparency Act?
- What are the penalties for willful violations of the Corporate Transparency Act?
- What is the range of monetary penalties allowable under the Corporate Transparency Act?
- What is the range of criminal penalties which could lead to federal jail time for violators of the CTA upon conviction?
For now let me make it clear to our audience, the Corporate Transparency Act has teeth. Small and medium sized businesses impacted by the CTA could incur serious civil penalties and several years in federal prison for failure to file timely Beneficial Owner Information Reports with the Financial Crimes Network. Our audience should stay tuned to future publications of our law firm’s Legal Thoughts Podcast.
INTERVIEWER WRAP-UP: Mlaah Singh, Tax Law Clerk
Attorney, thank you for sitting with me today in our first podcast on the Corporate Transparency Act and FinCEN’s Beneficial Information Owner Reporting Requirements We plan to record and publish in a few weeks about three to four more podcasts in this series on the Corporate Transparency Act where Mr. Jackson intends to shed more light on the impacts of the CTA on certain small and medium sized business owners.
Our listeners who want to hear more podcasts like this one please subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or wherever you listen to your podcast. Everybody take care! And come back in about two weeks, for more taxation, business structuring, contracts litigation and Immigration Legal Thoughts from Coleman Jackson, P.C., located right here in Dallas, Texas at 6060 North Central Expressway, Suite 620, Dallas, Texas 75206.
English callers: 214-599-0431 | Spanish callers: 214-599-0432 | Portuguese callers: 214-272-3100
ATTORNEY’S CLOSING REMARKS:
I want to thank our Legal Thoughts Podcast audience for giving us your attention today as our Law Firm’s Law Clerk, Mlaah Singh, interviewed me with respect to the Financial Crimes Enforcement Network’s Beneficial Owner Information Reports and its impact on certain small and medium sized business owner’s obligations under the Corporate Transparency Act. We intend to talk more about the FinCEN implementation of the CTA in a couple more podcasts in the next few weeks or so. Our listeners should stay tune for future podcast in this series; definitely, our listeners who run their own businesses should tune into Episode 3 where I go through the possible civil and criminal penalties imposed on violators of the Corporate Transparency Act’s Beneficial Ownership Information Reporting requirements!
If you want to see or hear more taxation, business structuring and contracts litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or wherever you listen to your podcast.
Stay tuned! We are here in Dallas, Texas and want to inform, educate and encourage our communities on topics dealing with taxation, litigation and immigration.
Until next time, take care.