Penalties for Non-Compliance with the Corporate Transparency Act

In an era of heightened emphasis on corporate transparency and accountability, legislation like the Corporate Transparency Act (CTA) plays a pivotal role in ensuring that businesses disclose accurate and up-to-date information about their ownership structure.

The CTA, enacted to combat money laundering, terrorist financing, and other financial crimes, imposes significant penalties for non-compliance.

Let’s review the consequences of failing to comply with the Corporate Transparency Act, covering scenarios such as forgetting to file, filing incorrect information accidentally, filing incorrect information intentionally, and not filing at all.

Forgetting to File a BOI Report

One of the most common pitfalls for businesses subject to the Corporate Transparency Act may simply be forgetting to file the required reports. The Act mandates that certain entities, such as corporations, limited liability companies (LLCs), and partnerships, submit beneficial ownership information FinCEN. You can learn more about who is required to file a BOI report here. 

Forgetting to file can lead to a series of cascading consequences.

Consequences

Warning Notices: In some jurisdictions, businesses might initially receive warning notices as a reminder to fulfill their reporting obligations. These notices are intended to serve as a gentle nudge, alerting businesses to their oversight.

Fines: Persistent non-compliance after warning notices may result in financial penalties. Fines can vary based on the jurisdiction and the severity of the lapse but are designed to incentivize timely and accurate reporting.

Suspension of Business Activities: In more severe cases, regulators may have the authority to suspend certain business activities until compliance is achieved. This can have a substantial impact on a company's operations and reputation.

Legal Repercussions: Repeated failure to file reports might escalate the situation to legal action. This could involve court proceedings, and businesses may find themselves embroiled in legal battles that could have been avoided through timely compliance.

Filing Incorrect Information on a BOI Report

Accurate reporting is a cornerstone of the Corporate Transparency Act, and unintentional errors can still attract penalties. Whether due to oversight or a genuine mistake, filing incorrect information can lead to regulatory scrutiny and potential repercussions.

Consequences

Correction Requirements: The CTA requires businesses to submit a corrected report within 30 days of when the reporting company becomes aware of any inaccuracy. 

Increased Scrutiny: Entities that repeatedly file incorrect information, even unintentionally, may come under increased regulatory scrutiny. 

Financial Penalties: There are no penalties for filing an inaccurate BOI report provided it is corrected within 90 calendar days of when it was filed.

Fines may be imposed for inaccuracies, particularly if they are deemed substantial or intentional. The severity of the penalty often depends on factors such as the nature of the error and the impact on the overall objective of the Corporate Transparency Act.

Filing Incorrect Information Intentionally

Intentional misrepresentation of beneficial ownership information is a serious offense under the Corporate Transparency Act. Such actions undermine the very purpose of the legislation and can result in severe consequences.

Consequences

Criminal Charges: Intentionally filing incorrect information can lead to civil and criminal charges. Prosecution may result in fines of up to $500 per day and 10 years imprisonment. 

Revocation of Business Licenses: Regulatory authorities may have the power to revoke or suspend business licenses for entities found guilty of intentional misrepresentation. This could effectively halt a company's operations.

Director and Officer Liability: Directors and officers of a company may be held personally liable for intentional misrepresentations. This can result in financial penalties, legal action, and damage to their professional reputations.

Permanent Exclusion from Government Contracts: Companies found intentionally providing false information may be permanently excluded from participating in government contracts. This exclusion can have far-reaching implications for a business's revenue and growth opportunities.

Not Filing a BOI Report Intentionally

The most severe breach of the Corporate Transparency Act involves a complete failure to file the required reports. Deliberate non-compliance with the Act undermines the fundamental purpose of enhancing corporate transparency and combating financial crimes.

Consequences

Severe Fines: Deliberate non-compliance may result in the maximum fines prescribed by the legislation. These fines are intended to be punitive and act as a deterrent for businesses contemplating willful non-disclosure.

Criminal Penalties: Willful non-compliance may result in criminal charges, which can lead to fines of $500 per day and up to 10 years imprisonment for individuals involved in the decision not to file.

Corporate Dissolution: Regulatory authorities may have the authority to initiate proceedings for the dissolution of a non-compliant entity. This extreme measure is intended to remove businesses that refuse to adhere to the transparency requirements.

Exclusion from Financial Systems: Non-compliant entities may be excluded from participating in financial systems, making it difficult or impossible to conduct legitimate financial transactions.

Final Notes on Non-compliance

The penalties for non-compliance with the Corporate Transparency Act are designed to ensure that businesses take their reporting obligations seriously. Whether through forgetfulness, accidental errors, intentional misrepresentations, or a complete refusal to file, the consequences can be severe. It is imperative for businesses to understand the specific requirements of the legislation in their jurisdiction, stay informed about updates, and seek professional guidance to navigate the complexities of reporting accurately and on time. Adhering to the Corporate Transparency Act not only avoids legal repercussions but also contributes to a more transparent and trustworthy business environment.