“While CTA regulation has been in effect since the start of this year, organizations are still grappling with what it means for them,” says Julie Dallmann, product management director at CSC. “The legal complexities involved are unchartered territory for many, with the different moving parts both challenging to interpret and balance.”
While awareness of the new regulation was high, at 93% saying they were aware of the new requirement, just 45% said they were aware of the specific requirements of the regulation, and just 39% of the specific reporting deadlines.
That generally tracks with other recent surveys, with an August survey of small businesses by Wolters Kluwer showing 33% of the small businesses that meet the criteria to report mistakenly believe it doesn't apply to them. About 39% said they knew it applied to them and another 23% said they were unsure.
When asked, about 16% said they have no intention of filing beneficial ownership details, with that number rising to 36% for businesses with revenues below $500,000.
Rupak Venugopal, vice president of beneficial ownership for financial and corporate compliance at Wolters Kluwer, said there is a big disconnect between many small business owners and their eligibility status.
“A significant portion of respondents mistakenly believe their organizations’ annual revenue or employee counts make them too small for eligibility. We strongly encourage all businesses to familiarize themselves with BOI reporting requirements and the specific exemptions listed by the CTA and the Financial Crimes Enforcement Network (FinCEN)," Venugopal said.
An earlier Small Business Majority national opinion poll found 58% of small-business owners are aware of the new law, and about 44% had already filed a Beneficial Ownership Information report. Of those who have filed, 68% said it was easy, and only 18% found completing it difficult.
John Arensmeyer, founder and CEO of Small Business Majority, said in a statement to The Playbook earlier in 2024 that, so far, the filing process has been easy, although many small businesses still need to be educated about the new requirements. He said it’s important for the Treasury Department to prioritize outreach campaigns and ensure user-friendly information is easily accessible to small businesses throughout 2024.
But the new regulation has also drawn a slew of legal challenges. On March 1, a U.S. District Court judge in Huntsville, Alabama, ruled the government overstepped and the legislation exceeds the powers granted to it by the Constitution. The National Small Business Association brought the lawsuit alongside small-business owner Isaac Winkles.
That has been appealed, but that lawsuit has been joined by challenges in Ohio, Maine, Michigan, Texas and Massachusetts, among others, all seeking a permanent injunction and subsequent overturning of the law. While opponents of the regulation have secured some early victories, there is no nationwide injunction — meaning business owners should prepare to report.
What does FinCEN and the Treasury Department want with the information?
While detractors have said small businesses are largely unaware of the new requirement, most service providers will be. That means when small businesses use their lawyer, accountant or other service provider, they likely will be told or reminded of the requirement.
Gary Kalman, U.S. director of Transparency International, an anti-corruption coalition that supports the reporting requirement and has filed an amicus brief in court in support of the legislation, said earlier in the year small businesses that honestly forget to report their ownership information or update it are not a target for enforcement.
“We need to stop spreading around the rhetoric that people are going to mistakenly get themselves in trouble,” Kalman said. "What FinCEN is looking for are criminal networks; national security risks. That's who they are looking for. They are not looking for the guy or the woman who owns a company who forgot to file some paper with the IRS.”
The aim is instead to help catch anonymous companies that supporters say are used to launder money, fund terrorist networks and allow bad actors to do business where they are not allowed, Kalman said. While the ownership database is not public, it will be accessible by law-enforcement agents, giving them another tool to locate and crack down on criminal enterprises.
Before the law was passed, people could get companies registered with an agent without disclosing who ultimately owns the company. Now, someone has to put a name down as the owner, providing at least a lead or link for law enforcement to follow, Kalman said.
