Construction Law: CTA Requirements
Trade Associations Urge Congress to Delay CTA Reporting
by Trent Cotney, partner, Adams & Reese, LLP
(Editor’s Note: Trent Cotney, partner at Adams & Reese, LLP, is dedicated to representing the roofing and construction industries. Cotney is General Counsel for the Western States Roofing Contractors Association and several other industry associations. For more information, contact the author at (866) 303-5868 or go to www.adamsandreese.com.)
Starting on January 1, 2024, companies across the United States were required to report information about their owners and other key stakeholders to the Financial Crimes Enforcement Network (FinCEN), a U.S. Treasury division. The intent of this reporting requirement is to hinder money laundering, terrorism, and other illicit activity, but the reality is a regulatory nightmare, both for FinCEN and the businesses affected.
The scope of the mandated data collection is enormous, and aside from the Tax Code, it is well beyond any other Federal government assemblage of information. Impacted businesses, the vast majority of them being small businesses such as LLCs, will be required to submit the names and personal information of their “beneficial owners.” This term refers to owners, senior management, board members, attorneys, and others with significant control or interest in the companies. The businesses will then be expected to monitor the supplied data and ensure it remains up-to-date.
Action From the Trade Associations
On November 16, 2023, more than 70 trade associations representing millions of U.S. businesses sent a letter to Congress urging lawmakers to postpone the reporting requirements for one year. They argued that FinCEN is not prepared to manage the influx of information that the reporting will involve and FinCEN has not adequately educated the public, so many companies are not aware of their obligations.
It is estimated that FinCEN will receive more than 32 million reports starting in 2024, with another five to six million filings in each year that follows.
The Letter Explained
Despite this unprecedented challenge, FinCEN is simply not ready. Of the three primary rules necessary to implement the new law, only one has been completed, the second is still at the proposed stage and needs to be finalized, while the third has yet to be released even as a proposed rule. FinCEN’s leadership has assured Congress they are ready to go starting this year but that is clearly not the case.
Meanwhile, FinCEN is woefully behind when it comes to educating stakeholders of their new obligations. A National Federation of Independent Business survey found that 90 percent of respondents were entirely unfamiliar with the reporting requirements. The CTA includes civil and criminal penalties of up to $10,000 and two years of jail time for failing to comply, so this lack of awareness is alarming and needs to be addressed before the law is implemented.
Associations that Signed the Letter
The letter to Congress was signed by dozens of organizations, including the National Federation of Independent Business, Real Estate Roundtable, Associated General Contractors of America, Independent Electrical Contractors, National Roofing Contractors Association, National Tooling and Machining Association, Plumbing-Heating-Cooling Contractors National Association, and Tile Roofing Industry Alliance. These and other associations recognize the substantial burden that this reporting requirement will place on companies from coast to coast.
What Happens Next
We can hope that Congress heeds the warnings of this letter, as well as concerns raised by the American Institute of Certified Public Accountants, and delays the implementation of this reporting requirement. However, if our lawmakers do not act and the CTA requirements take effect In January, many companies will need to play catch-up. For now, companies are advised to gather information about their beneficial owners and be prepared to submit their reports.
