Corporations throughout the US are adjusting to the new beneficial ownership reporting requirements of the Corporate Transparency Act. As they do, officers, directors and shareholders should keep in mind that a person who willfully violates the Acts beneficial ownership reporting requirements may be subject to civil penalties of up to $591 for each day that the violation continues and may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000.
This includes not only an individual who files (or attempts to file) false information with the Financial Crimes Enforcement Network but also anyone who willfully provides the filer with false information to report. Individuals are liable if they either cause the failure or are a senior officer at the company at the time of such failure. This also includes a beneficial owner or company applicant who willfully fails to provide the required information to a reporting company. Both individuals and corporate entities are liable for willfully failing to report complete or updated beneficial ownership information.
In such circumstances, businesses face not only the prospect of civil and criminal liability but also endangering their next round of financing by not being able to represent and warrant compliance with law in the deal documents. Similar “compliance” provisions are also common in today’s commercial contracts. Moreover, the Company’s payment of fines and penalties – not to mention the individual fines, penalties and possible imprisonment of the company’s officers and directors – will adversely affect the company’s operations and financial condition. Furthermore, liability for such failure to report goes all the way up the “ownership chain” to the refusing equity holder entities and their respective managers, officers and directors.
For questions on CTA reporting and how to comply, please contact Russ Hansen or any other member of Prince Lobel’s Business Transactions Practice Group.