Navigating the CTA: A Guide for Corporate Lawyers

Navigating the CTA: A Guide for Corporate Lawyers

Stereotype of a rich man posing with bags of money and counting dollar billsThe Corporate Transparency Act (CTA) represents a significant shift in the U.S. approach to combating financial crimes such as money laundering and terrorist financing. Part of the National Defense Authorization Act, the CTA, effective January 1, 2024, imposes substantial reforms aimed at increasing transparency in corporate structures. Under the CTA, corporations, LLCs, and similar entities are required to disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), setting new precedents for compliance, particularly for in-house legal teams.

Role of in-house lawyers in managing CTA compliance risks

For in-house counsel, the implications of the CTA are profound, both in terms of liabilities and potential compliance risks. Here are seven practical ways in-house counsel can mitigate these risks:

  1. Educate the business. The first step is to ensure that all levels of the company are aware of the CTA requirements. Organize training sessions for key stakeholders, explaining what beneficial ownership means, who is eligible and the company’s obligations under the law.
  2. Development of compliance frameworks. In-house counsel must develop or update internal policies and procedures to comply with the CTA. This includes establishing systems for collecting, verifying and updating beneficial ownership information.
  3. Collaborate across departments. CTA compliance is not just a legal issue; it also affects finance, tax and operational departments. In-house lawyers must facilitate collaboration across departments to ensure that beneficial ownership data collection and reporting is accurate and efficient.
  4. Liaison with external entities. Lawyers will need to manage relationships with external stakeholders such as banks, external legal counsel and regulators. Effective communication and cooperation will be essential, particularly to clarify how data is shared and to protect company information.
  5. Tracking ownership changes. Constant vigilance is required to comply with the CTA. In-house counsel must establish procedures for tracking and reporting changes in ownership structure or control, consistent with the reporting requirements of the Act.
  6. Implementation of technological solutions. Use technology to streamline the collection and management of beneficial ownership data. Legal technology solutions can automate parts of the compliance process, reducing errors and saving time.
  7. Preparation for audits and inspections. Because the CTA allows certain government agencies to access reported data, in-house counsel must prepare the company for potential audits. This involves regular reviews of compliance practices and ensuring that all reports to FinCEN are accurate and up-to-date.

Create collaborative frameworks

In addition to internal strategies, corporate counsel should also foster collaboration with industry peers and regulators. By actively participating in forums and advisory groups, they can stay informed about best practices and emerging trends related to CTA compliance.

The introduction of the CTA is transforming the legal responsibilities of companies, and in-house counsel are on the front lines of ensuring these changes are seamlessly integrated into the company’s operations. By acting proactively, in-house legal teams can turn CTA compliance into a strategic advantage, ensuring transparency and integrity in the fabric of American business. This proactive approach mitigates risk and enhances the company’s reputation with regulators, investors, and the public.

Olga MackOlga V. Mack Olga is a fellow at CodeX, the Stanford Center for Legal Informatics, and the Editor-in-Chief of Generative AI at law.MIT. Olga embraces legal innovation and has dedicated her career to improving and shaping the future of law. She believes that the legal profession will emerge even stronger, more resilient, and more inclusive than before by embracing technology. Olga is also an award-winning general counsel, operations professional, startup advisor, public speaker, adjunct professor, and entrepreneur. She has written Get on board: Win your ticket to a seat on a company board of directors, Smart Contract Security FundamentalsAnd Value of Blockchain: Transforming Business Models, Society and CommunitiesShe is working on three books: Visual IQ for Lawyers (ABA 2024), The Rise of Product Lawyers: An Analytical Framework to Systematically Advise Your Clients Everything the Product Lifecycle (Globe Law and Business 2024) and Legal Operations in the Age of AI and Data (Globe Law and Business 2024 ). You can follow Olga on LinkedIn and Twitter @olgavmack.