Washington Lawyer - November/December 2024 - 19

FEATURE
FEATURE
DECIPHERING THE CTA
The CTA requires certain entities to file reports identifying two categories
of individuals: (1) the company's beneficial owners and, in the case of
businesses formed after January 1, 2024, (2) the company applicants.
With 23 types of entities exempted under the CTA, two questions arise
for many small businesses: Are they required to report and who is considered
a beneficial owner?
FinCEN's final rule defines a beneficial owner as any individual who
meets at least one of two criteria: (1) exercises substantial control over
the reporting company or (2) owns or controls at least 25 percent of its
ownership interest. Indicators of substantial control include service as a
senior officer; authority over the appointment and removal of senior officers
or a majority or dominant minority on the board of directors; and
direction, decision, or substantial influence over important matters affecting
the reporting company. As a result, the analysis for beneficial
ownership can be somewhat complex.
Kulumani says the Pro Bono Center first identified the need to untangle
the complexities of the CTA in spring 2023, when the final rules of the act
were released, and the center reached out to a Big Law firm to pitch a
possible webinar. Quick action was needed, however. The CTA requires
any business active in 2023 or earlier to report at the beginning of 2025,
and entities formed in 2024 have only 90 days to comply.
In early 2024, Honigman contacted the Pro Bono Center for a possible
partnership to educate small businesses about the requirements imposed
by the CTA. " Pro bono efforts are focal to what Honigman does, "
says managing partner Harold Fox. " We are very involved in the communities
and in pro bono efforts of our offices in Michigan and Chicago, and
that was something that we wanted to replicate here in D.C. " The firm
launched in Washington, D.C., in 2020, and since then it has been engaged
with the Pro Bono Center to find ways to get involved in the community,
adds Fox.
Noting the CTA's broad application, Honigman proposed holding a pro
bono clinic where small business owners could get advice on CTA compliance.
The first clinic, held in person on April 6 at the West End Library,
drew four Honigman attorneys
and 10 volunteers
from other firms, including
Blank Rome LLP; Fried,
Frank, Harris, Shriver &
Jacobson LLP; Latham &
Watkins LLP; Lowenstein
Sandler LLP; Mayer Brown
LLP; the Wicks Group of
Companies, L.L.C.; and
Simpson Thacher & Bartlett
LLP. On that day, more than
30 clients met one-on-one
with volunteer attorneys for
consultations and brief advice
on the CTA's reporting
requirements.
CHRISTINE KULUMANI
D.C. Bar Pro Bono Center
The success of the first clinic
led to a second one, conducted
virtually on July 25,
at which another 25 small business owners were paired with volunteer
attorneys in private Zoom calls.
CLOSER SCRUTINY
The clinics are particularly meaningful for small business owners in the
District. For many of them, penalties could be disastrous, says Kulumani.
The CTA carries monetary fines of up to $10,000 and up to two years in
prison for reporting violations; civil penalties can be $500 per day.
And while small businesses are accustomed to reporting obligations in
the District of Columbia, Maryland, and Virginia, Kulumani says most have
not previously been subject to federal reporting requirements. " So many
of them either didn't know about this law, or just didn't understand it, "
she says. " They thought, well, I'm not a big business, so I don't need to
worry about this, but it's actually the opposite. The law targets small entities
that are either below 20 employees or less than $5 million in annual
income. "
Gobourne, who had previously
taken part in Pro Bono Center
trainings for small businesses,
attended the July clinic to learn
more about the CTA. Gobourne
confirmed that she would need
to file beneficial ownership information,
and with the help of
volunteer attorneys, she walked
away from the clinic with a clear
understanding of how to complete
and file the form correctly.
" It is a wonderful thing, and I'm
very blessed that my business
does thrive, but there's a whole
other side, which is the practice
of running a business itself, " she says. " So, anything like this is very helpful.
The fact that it was free was even better. It was one less thing that I
[had] to stress about. "
The CTA clinics
are particularly
meaningful for small
business owners in
the District. For many
of them, penalties
could be disastrous.
Grateful for the help she received, Gobourne has been paying it forward
to colleagues and friends who own businesses by informing them about
the CTA obligations and impending deadlines. " They weren't aware of it, "
she says. " I was surprised. People really don't know. It's hard for small
businesses to capture everything, and it's very easy for a small business
to fold. "
LINGERING UNCERTAINTY
As the CTA's initial deadline approaches, experts continue to watch for
new developments. " Frankly, I think there's still a lot of unknown out
there, " Fox says. " Law firms know about the CTA, and clients of law firms
now know about it very well. The Pro Bono Center has been trying to disseminate
the information to the broader community, but I think there are
lots of folks who don't seek pro bono representation and aren't necessarily
hearing about it. I know that just from talking to people day to day. "
" So, the kind of visibility the [Pro Bono Center] has been able to give to
the CTA is great for the D.C. community, but we're now in the back half of
the year and something's got to be done to continue communicating
the requirements more broadly, " adds Fox.
NOVEMBER/DECEMBER 2024 * WASHINGTON LAWYER 19
Courtesy of Christine Kulumani
Washington Lawyer - November/December 2024

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