August 20, 2024

Beware of Scams Targeting Corporate Transparency Act Reporting Requirements!

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Article Highlights:

Purpose of the Corporate Transparency Act
Beneficial Owner Reporting Requirements
Types of Scams Associated with the CTA
Phishing Scams
Fake Compliance Services
Impersonation Scams
Data Breach Scams
Fake Penalty Notices
What Beneficiaries of a Scam Should Do

The Corporate Transparency Act (CTA), enacted as part of the Defense Authorization Act for Fiscal Year 2021, represents a significant legislative effort to enhance corporate transparency and combat illicit financial activities in the United States. The CTA mandates the electronic reporting of beneficial ownership information (BOI) to the federal government’s Financial Crimes Enforcement Network (FinCEN), aiming to curb money laundering, terrorism financing, and other forms of illicit finance. However, the CTA has also given rise to various scams targeting businesses and individuals. This article explores the purpose of the CTA, its beneficial owner reporting requirements, and the types of scams associated with it. Additionally, it provides guidance on what victims of such scams should do.

Purpose of the Corporate Transparency Act - The primary objective of the CTA is to strengthen the integrity and transparency of the U.S. financial system. By requiring businesses to disclose their beneficial owners, the CTA aims to:

Combat Illicit Finance - The CTA seeks to prevent money laundering, terrorism financing, and other illicit financial activities by making it more difficult for criminals to hide their identities behind anonymous shell companies.
Enhance National Security - By improving transparency, the CTA supports national security efforts to identify and disrupt the financial networks of criminal organizations, including drug traffickers, human traffickers, and kleptocrats.
Protect Legitimate Businesses - The CTA aims to level the playing field for legitimate businesses that comply with the law by reducing the competitive advantage of those that engage in illegal activities.

Beneficial Owner Reporting Requirements - Under the CTA, reporting companies include corporations, limited liability companies (LLCs), and any other entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe. This generally includes limited partnerships and possibly general partnerships depending upon state or tribal law. Also included are similar foreign entities.

These entities must disclose the identity and information related to their beneficial owners and in some cases the company applicant. The government does not charge a fee for submitting the report.

Beneficial Owner - A beneficial owner is defined as a natural person who:

o Holds at least 25% of the company's equity interests.

o Exercises substantial control over the company.
Company Applicant - The individual who filed the company's formation documents.

The required information for the above includes:

Full legal name
Date of birth
Residential or business address
State or tribal jurisdiction of formation
IRS taxpayer identification number

Verification of identity, such as a passport or driver’s license, is generally required to be uploaded when the Beneficial Ownership Information Report is submitted to FinCEN.

Failure to comply with these reporting requirements can result in severe penalties, including fines and imprisonment.

Types of Scams Associated with the CTA - The implementation of the CTA has unfortunately led to various scams targeting businesses and individuals. These scams exploit the regulatory requirements and the potential penalties for non-compliance. The following are some common types of scams associated with the CTA:

Phishing Scams - Scammers send fraudulent emails or messages posing as FinCEN or other regulatory authorities, requesting sensitive information or payment to comply with the CTA. (The government does not charge a fee for submitting the BOI report.) These emails often contain malicious links or attachments designed to steal personal information or install malware on the recipient's device.

Fake Compliance Services: Fraudsters create fake companies offering compliance services to help businesses meet CTA requirements. They charge exorbitant fees for their services and may even collect sensitive information under the guise of assisting with compliance.
Impersonation Scams: Scammers impersonate legitimate businesses or regulatory authorities, contacting companies to demand immediate payment or information to avoid penalties for non-compliance with the CTA. These demands are often accompanied by threats of legal action or fines.
Data Breach Scams: Cybercriminals exploit vulnerabilities in companies' systems to steal beneficial ownership information. They may use this information for identity theft, financial fraud, or to sell on the dark web.
Fake Penalty Notices: Scammers send fake penalty notices to businesses, claiming they have violated CTA requirements and must pay a fine to avoid further legal action. These notices often include official-looking logos and language to appear legitimate.

What Beneficiaries of a Scam Should Do - If you suspect that you have been targeted by a scam related to the CTA, it is crucial to take immediate action to protect yourself and your business. Here are the steps you should follow:

Verify the Source - Before responding to any communication related to the CTA, verify the source. Contact FinCEN or the relevant regulatory authority directly using official contact information to confirm the legitimacy of the request.
Report the Scam - Report the scam to FinCEN, the Federal Trade Commission (FTC), and your local law enforcement agency. Providing detailed information about the scam can help authorities investigate and prevent further incidents.
Monitor Your Accounts - Regularly monitor your financial accounts and credit reports for any suspicious activity. If you notice any unauthorized transactions or changes, report them immediately to your financial institution and credit bureaus.
Secure Your Information - Take steps to secure your personal and business information. This may include changing passwords, enabling two-factor authentication, and updating security software on your devices.
Educate Your Team - Ensure that your employees are aware of the potential scams associated with the CTA and know how to recognize and respond to suspicious communications. Regular training and awareness programs can help prevent falling victim to scams.
Seek Legal Advice - If you have provided sensitive information or made payments to a scammer, seek legal advice to understand your options and take appropriate action to mitigate any potential damage.

If you suspect that you have been targeted by a scam–whether related to the Corporate Transparency Act or some other nefarious scheme–it is crucial to verify the source, report the scam, monitor your accounts, secure your information, educate your team, and seek legal advice. By staying vigilant and informed, businesses can navigate the regulatory landscape of the CTA while safeguarding their interests.

Have questions or need assistance complying with the CTA reporting requirements? Please contact this office.