The Oklahoma Bar Journal December 2022

E thics & P rofessional R esponsibility

Lawyer Responsibilities Under the New Corporate Transparency Act

By Gary W. Derrick and Jacob L. Fanning

T HE UNITED STATES HAS LONG SOUGHT BETTER TRANSPARENCY IN THE ownership of legal entities. 1 Greater ownership transparency was needed to prevent the use of “shell” corporations and limited liability companies from facilitating terrorist fund ing, money laundering, selling narcotics, sex trafficking and other criminal conduct. The “shell” corporations and LLCs were also used for tax avoidance and kleptocratic corruption. Knowing who owned the legal entities could be critical in foiling their illicit activities. It was ironic that the United States should seek transparency when its own states were the source for many of the illicit “shell” corporations and LLCs. Bad actors could easily form U.S.-based entities because no system existed to record the beneficial ownership of state corporations and LLCs. 2

rulemaking (NPRM) requesting comment on the proposed regu lations, with the comment period ending Feb. 7, 2022. 6 By requiring the reporting of beneficial ownership and manage ment of nearly every legal entity formed or operating in the U.S., the CTA will have an enormous impact on companies and the law yers who advise them. Lawyers will likely play a critical role in their clients’ reporting, and law yers assisting in the formation of a corporation or LLC may find their personal information reported to the CTA database. This article discusses key aspects of the CTA and assesses its impact on lawyers who form legal entities.

That is changing. On Jan. 1, 2021, Congress passed the National Defense Authorization Act (NDAA). Included within the NDAA was the Corporate Transparency Act (CTA). 3 Through the CTA, Congress directed the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to establish and maintain a national registry of beneficial owners, managers and company applicants of entities that are deemed to be reporting companies. 4 The CTA was intended to make it more onerous for domestic and foreign individuals to operate shell com panies for illicit purposes. 5 The CTA required that implementing regulations be promulgated by the end of 2021. On Dec. 7, 2021, FinCEN issued a notice of proposed

DEFINING A REPORTING COMPANY AND EXEMPTIONS Reporting Companies Subject to a few exemptions, legal entities formed with a secre tary of state filing must report. 7 In addition, legal entities operating in the U.S., regardless of when or where they were formed, must also report. 8 This will include all domestic corporations, LLCs and limited partnerships and foreign entities doing business in the U.S. FinCEN estimates there are approximately 30 million entities currently operating within the U.S. that will be subject to report ing, and more than three million new entities are formed annually that will be subject to reporting. 9 The definition does include general partnerships, the formation

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