Navigating The CTA: A Guide For In-House Lawyers

The Corporate Transparency Act (CTA) represents a significant pivot in the U.S. approach to combating financial crimes like money laundering and terrorism financing. As part of the National Defense Authorization Act, the CTA, effective from January 1, 2024, mandates substantial reforms aimed at increasing transparency in the corporate structure. Under the CTA, corporations, LLCs, and similar entities are required to disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), setting new compliance precedents, particularly for in-house legal teams.

Role Of In-House Lawyers in Managing CTA Compliance Risks

For in-house lawyers, the implications of the CTA are profound, both in terms of the responsibilities and the potential risks of noncompliance. Here are seven practical ways in-house lawyers can spearhead efforts to mitigate these risks:

1. Educating the Business. The first step is to ensure that all levels of the company are aware of CTA requirements. Conduct training sessions for key stakeholders explaining what beneficial ownership means, who qualifies, and the company’s obligations under the law.
2. Developing Compliance Frameworks. In-house lawyers must develop or update internal policies and procedures to comply with the CTA. This includes setting up systems for collecting, verifying, and updating beneficial ownership information.
3. Collaborating Across Departments. Compliance with the CTA isn’t just a legal issue — it also involves finance, tax, and operations departments. In-house lawyers should facilitate cross-departmental collaborations to ensure that the collection and reporting of beneficial ownership data is accurate and efficient.
4. Liaising With External Entities. Lawyers will need to manage relationships with external stakeholders such as banks, external counsel, and regulatory bodies. Effective communication and cooperation will be crucial, especially in clarifying how data is shared and in protecting company information.
5. Monitoring Changes in Ownership. Ongoing vigilance is necessary to comply with the CTA. In-house lawyers should establish procedures for monitoring and reporting changes in ownership structure or control, in line with the act’s reporting requirements.
6. Implementing Technology Solutions. Utilize technology to streamline the collection and management of beneficial ownership data. Legal tech solutions can automate parts of the compliance process, reduce errors, and save time.
7. Preparing for Audits and Inspections. Since the CTA allows for certain governmental bodies to access the reported data, in-house lawyers should prepare the company for potential audits. This involves regular reviews of compliance practices and ensuring all reports to FinCEN are accurate and current.

Building Collaborative Frameworks

Besides the internal strategies, in-house lawyers must also foster collaboration with industry peers and regulatory bodies. By actively participating in forums and advisory groups, they can stay informed on best practices and emerging trends related to CTA compliance.

The introduction of the CTA brings about a transformation in the legal responsibilities of corporate entities, and in-house lawyers are on the front lines to ensure that these changes are seamlessly integrated into corporate operations. By acting proactively, in-house legal teams can turn compliance with the CTA into a strategic advantage, ensuring transparency and integrity in the corporate fabric of America. This proactive approach mitigates risks and enhances the company’s reputation with regulators, investors, and the public.

Olga V. Mack is a Fellow at CodeX, The Stanford Center for Legal Informatics, and a Generative AI Editor at law.MIT. Olga embraces legal innovation and had dedicated her career to improving and shaping the future of law. She is convinced that the legal profession will emerge even stronger, more resilient, and more inclusive than before by embracing technology. Olga is also an award-winning general counsel, operations professional, startup advisor, public speaker, adjunct professor, and entrepreneur. She authored Get on Board: Earning Your Ticket to a Corporate Board Seat, Fundamentals of Smart Contract Security, and  Blockchain Value: Transforming Business Models, Society, and Communities. She is working on three books: Visual IQ for Lawyers (ABA 2024), The Rise of Product Lawyers: An Analytical Framework to Systematically Advise Your Clients Throughout the Product Lifecycle (Globe Law and Business 2024), and Legal Operations in the Age of AI and Data (Globe Law and Business 2024). You can follow Olga on LinkedIn and Twitter @olgavmack.