Category: Business Organizations

FinCEN’s Proposed Streamlined SAR — The Real Estate Report

On February 16, 2024, the Financial Crimes Enforcement Network (“FinCEN”) issued a proposed rule addressing “Anti-Money Laundering Regulations for Residential Real Estate Transfers.” The proposed rule would, among other things, require certain persons involved in real estate closings to maintain records regarding non-financed residential real estate transfers and to submit “streamlined SARs” (suspicious activity reports), called Real Estate Reports, to FinCEN. “The persons subject to these reporting and recordkeeping requirements would be deemed reporting persons for purposes of the proposed rule and . . . [t]he information required to be reported in the Real Estate Report would identify the reporting person, the legal entity or trust to which the residential real property is transferred, the beneficial owners of that transferee entity or transferee trust, the person that transfers the residential real property, and the property being transferred, along with certain transactional information about the transfer.”

As FinCEN describes in the Federal Register notice including the proposed rule, the Bank Secrecy Act has generally required that real estate transaction information falls within the categories of transactions that are subject to appropriate money laundering controls since 1970. However, “for many years, FinCEN has exempted such persons from comprehensive regulation under the BSA and has issued a series of time-limited and geographically focused ‘geographic targeting orders’ (“GTOs”) to the real estate sector in lieu of more comprehensive regulation.” In particular, in 2016, FinCEN specifically extended a Residential Real Estate GTO to “require title insurance companies to file reports and maintain records concerning non-financed purchases of residential real estate above a certain price threshold by certain legal entities in select metropolitan areas.” As a result of that 2016 GTO, the information received has indicated to FinCEN that more comprehensive regulation is necessary, when it comes to non-financed real estate transactions. The goal of this permanent rule would be to “connect non-financed residential real property purchases by certain legal entities with the true beneficial owners making the purchases, thereby decreasing the ability of criminals to hide their identities while laundering money through real estate.”

Effectively, the proposed rule would require that at least one person involved in the real estate transaction would have to submit the Real Estate Report. And, that one person would not need to exercise any discretion regarding whether to file the Real Estate Report (unlike when traditional SARs are filed) and the proposed rule would not require confidentiality to be maintained by any of the persons involved in the filing of the Real Estate Report (again, unlike the confidentiality covered institutions must maintain regarding whether they have filed a SAR). While there is a hierarchy in terms of which person would, under the rule, be obligated to submit the Real Estate Report, the parties may also sign a “designation agreement” that would designate a particular person identified in the hierarchy as being the reporting person. Primarily, that person should be “the person listed as the closing or settlement agent on a settlement (or closing) statement.” If there is no agent on the closing statement, then the person that has prepared the closing statement should submit the Real Estate Report. If there is no closing statement, then the person that underwrites the title policy should submit the Real Estate Report. And, if there is no title policy underwritten, then reporting should be done by the “person that disburses the greatest amount of funds in connection with residential real property transfer”, meaning disbursement from an escrow account, a trust account or from a lawyer’s trust account, but excluding direct transfers between transferees. If there is no person disbursing on behalf of the transferees, then the person who prepares an evaluation of the title should submit the Real Estate Report. And, if all else fails, then the person that prepares the deed for the transaction should submit the Real Estate Report. This so-called “reporting cascade” is designed to “capture both sales of residential real estate and non-sale transfers of residential real estate . . . to ensure uniform coverage of non-financed transfers and to ensure that nominees do not purchase homes for criminal actors and then transfer the title on free of charge to a legal entity or trust.”

There are three elements that determine whether a transaction is a “reportable transaction”:

1) Is the kind of property involved in the transaction covered by the rule?

2) Is any transferee considered a “transferee entity” or “transferee trust”?

3) Is the transaction not covered by any of the following exceptions?

  1. Transaction is financed;
  2. Transaction is low-risk because it involves an easement, death, divorce or bankruptcy; or
  3. Transaction involves transfer directly to an individual person.

In terms of the transactions that would be subject to being reported through the Real Estate Report, FinCEN cast an intentionally broad net. “The proposed rule is meant to broadly capture residential real property such as single-family houses, townhouses, condominiums, and cooperatives, as well as apartment buildings designed for one to four families. These properties would be captured even if there is also a commercial element to the property, such as a single-family residence that is located above a commercial enterprise.” Further, many kinds of land-only transactions would be reportable.

In terms of the types of transferees involved, as mentioned, any transfer directly to an individual, even if that transfer was not financed and was not deemed to be low-risk, would not result in a reportable transaction. But, if the transferee is any person other than an individual and that transfer is not financed or is not low-risk, then the transfer would most likely be deemed a reportable transaction. The definition of “transferee entity” generally means “any person other than a transferee trust or an individual.” The definition of “transferee trust” generally means “any legal arrangement created when a person . . . places assets under the control of a trustee for the benefit of one or more persons . . . or for a specified purpose, as well as any legal arrangement similar in structure or function[,] whether formed under the laws of the United States or a foreign jurisdiction.” There are specific exemptions to both of these transferee definitions, including statutory trusts and trusts that are securities reporting issuers, and for the most part, FinCEN points to protocols described in its rules under the Corporate Transparency Act (“CTA”), especially its Beneficial Ownership Reporting Rule, as being applicable to defining which entities and trusts may or may not be exempt from these transferee definitions. Having said that, the inclusion of most trusts involved in non-financed transactions is especially interesting.

In addition to the proposed rule provisions, FinCEN lists no less than 50 questions for comment from interested parties. These questions include everything from how likely “designation agreements” are likely to be used to concerns that may arise in transactions that are partially non-financed to whether concerns relating to non-financed real estate transactions extend to commercial real estate, as well. Comments are due to FinCEN on or before April 16, 2024.

© Copyright 2024 Cadwalader, Wickersham & Taft LLP
For more on FinCEN, visit the NLR Financial Institutions & Banking section.

Year in Review: Criminal Enforcement by the DOJ Antitrust Division in 2023

Introduction

When it comes to antitrust criminal enforcement, 2023 will be remembered as the year when the US Department of Justice’s (DOJ) Antitrust Division redefined and tested the outer boundaries of its authority. Here is a look back at the key events that defined the DOJ’s year in criminal antitrust enforcement.

Losses in Labor Markets

The DOJ continued its focus on labor markets in 2023 by pursuing per se no-poach and wage-fixing prosecutions despite resounding resistance by fact finders. In these cases, the DOJ alleged that companies and executives restrained trade in labor markets in violation of Section 1 of the Sherman Act through agreements that restricted movement and suppressed the wages of workers.

Courts have allowed these per se no-poach and wage-fixing cases to survive the motion to dismiss stage of litigation, but the DOJ’s success has routinely ended there. In 2022, the DOJ tried its first criminal no-poach case in US v. DaVita, which was successfully defended by McDermott and resulted in a complete acquittal of both corporate and individual defendants. In 2023, the DOJ fared no better:

  • In US v. Manahe (D. Maine), the DOJ charged four business managers in an alleged conspiracy to fix the wages and restrict the hiring of personal support specialist workers for two months during the pandemic. The government presented evidence such as text messages discussing hourly wages and recordings of meetings between the defendants, while the defendants countered by showing that the discussed prices were not implemented, and a draft agreement went unsigned. The jury acquitted all four defendants following a two-week trial in March 2023.
  • As we previously reported, the DOJ suffered a blow in US v. Patel (D. Connecticut) in April 2023. During a four-week trial, the government alleged that defendants conspired to restrict the hiring and recruiting of skilled workers and engineers in the aerospace industry. The defense moved for a judgment of acquittal under Rule 29 of the Federal Rules of Criminal Procedure, an extreme lever that judges rarely pull to end a trial before it reaches the jury. Judge Victor A. Bolden granted the motion and acquitted all the defendants. He found that the engineers’ freedom to switch companies and the number of exceptions to the agreements could not support finding market allocation as a matter of law.
  • In November 2023, the DOJ stunningly moved to dismiss its own case alleging a conspiracy by outpatient medical care competitors not to solicit senior-level employees. The case was three years into litigation; in its motion, the DOJ simply stated that dismissal would conserve court time and resources. This was the DOJ’s last pending no-poach case against a corporation.

If the DOJ’s labor markets cases have a theme, it is this: If at first you don’t succeed, try, try again. Despite four straight losses and a voluntary dismissal, the DOJ remains undeterred in bringing additional criminal wage-fixing and no-poach suits. The Biden administration’s “whole of government” approach to enforcement means that shared resources and collaboration among agencies, including the DOJ and the National Labor Relations Board, will continue into 2024. Assistant Attorney General Jonathan Kanter left no doubt that the DOJ is doubling down on its executive authority despite a losing track record in court: “Let me confirm: We are just as committed as ever to, when appropriate, using our congressionally given authority to prosecute criminal violations of the Sherman Act in labor markets.” Addressing the Women’s White Collar Defense Association in December 2023, Deputy Assistant Attorney General Doha Mekki echoed, “We look forward to charging more no-poach and wage-fixing cases.”

Per Se Problems

The DOJ stumbled in a different per se setting in December 2023, when a three-judge panel on the US Court of Appeals for the Fourth Circuit affirmed fraud charges but reversed the per se bid-rigging conviction of a steel and aluminum manufacturing sales manager turned executive. In US v. Brewbaker, the appellate panel found that “caselaw and economics show that the indictment failed to state a per se antitrust offense as it purported to do.”

In its 2020 indictment, the DOJ alleged that Brent Brewbaker of Contech Engineered Solutions conspired with a North Carolina distributor and exclusive dealer, Pomona Pipe Products, to share total bid pricing information on North Carolina Department of Transportation (NCDOT) aluminum projects and use that information to purposefully submit losing bids. This allegedly appeased Pomona and maintained Contech’s status on NCDOT’s “emergency bid list.” Contech pled guilty, but Brewbaker continued to trial. A jury found him guilty of bid rigging and other fraud charges; he appealed.

The Fourth Circuit held that the DOJ’s indictment implicated Contech and Pomona as horizontal competitors in NCDOT aluminum projects and as vertical competitors through their manufacturer-dealer relationship, resulting in a “hybrid” restraint. The DOJ sought to isolate Contech’s role as a manufacturer and competing bidder for NCDOT aluminum projects, focusing solely on the horizontal nature of the restraint and subsequently arguing for per se treatment.

The panel did not accept the DOJ’s argument that the conspiracy itself involved only horizontal conduct and instead considered the parties’ competitive relationship, which involved both horizontal and vertical aspects. The panel found that “agreements that look otherwise identical in form produce different economic effects based on how the parties relate to one another,” and stated that the DOJ’s theory would “force . . . arbitrary and likely impossible line-drawing” to determine which “part” of the entity to consider. The court continued, “The Sherman Act doesn’t ignore reality; it treats the entire business entity as the single party it is. . . . Antitrust law does not turn on such artificial mental gymnastics.”

Under this premise, the court moved through an analysis of case law and economic rationale to determine appropriate scrutiny. Although there is no direct guidance on hybrid restraints in the bid rigging context, the panel contrasted the present case with Leegin Creative Leather Products, 551 U.S. 877 (2007), where the Supreme Court of the United States applied per se scrutiny to a price fixing case despite both horizontal and vertical elements. In Brewbaker, the court found instead that the restraint in the indictment should not have been subject to the per se standard based on precedent, nor would it invariably lead to anticompetitive effects upon economic analysis—all making per se scrutiny inappropriate. As a result, and in a blow to the DOJ, the court reversed Brewbaker’s Sherman Act conviction.

In Full (Strike) Force

The DOJ’s Procurement Collusion Strike Force (PCSF) succeeded in securing several guilty pleas and stiff penalties in 2023. The PCSF is tasked with training government personnel and enforcing antitrust and fraud laws related to government contract bidding, grants and program funding.

PCSF Director Daniel Glad spoke to the National Association of State Procurement Officials in November 2023, highlighting the state and agency partnerships that comprise the PCSF. He pushed for even greater collaboration with state officials in 2024 and coming years, noting the recent influx of funds from the Infrastructure Investment and Jobs Act, which authorized billions of dollars in transportation and infrastructure programs. Later that month, the PCSF held its first summit to discuss strategies, priorities and resources. As reported by the DOJ, attendees included 11 “law enforcement partners” from across the country and 22 US Attorneys’ Offices.

These partnerships have surely strengthened the PCSF, and it has an extensive track record of successful convictions and guilty pleas. Among them are the following:

  • In January 2023, military contractor Aaron Stephens pleaded guilty to rigging bids related to the maintenance and repair of military tactical vehicles, following his alleged co-conspirator Mark Leveritt’s guilty plea July 2022. In August 2023, Stephens received an 18-month prison sentence and a $50,000 criminal fine. Leveritt received a six-month sentence and a $300,000 fine.
  • Also in January 2023, a construction company owner received a 27-month sentence and was ordered to pay a $1.75 million fine for fraudulently securing government contracts meant for service-disabled veteran-owned small businesses.
  • A Metropolitan Transportation Authority (MTA) employee out of New York pleaded guilty to engaging in wire fraud related to MTA excess vehicle auctions. Assistant Attorney General Jonathan Kanter described the conduct as “stealing from the public” and promised that the DOJ would continue to “detect and punish” those who abuse the public trust. Two additional guilty pleas by fellow MTA employees followed.
  • An insulation contractor out of Connecticut was the seventh person sentenced in a bid rigging and contract fraud investigation, resulting in a 15-month prison sentence and a restitution fine of more than $1 million. The alleged scheme related to insulation contracting at both public and private institutions, including universities and hospitals.
  • In March 2023, a Georgia jury found three military contractors guilty of conspiring to defraud the United States and two counts of major fraud related to two years of conduct.
  • A construction company owner faced a 78-month prison sentence and an almost $1 million restitution fine for bid rigging and bribery involving the California Department of Transportation (Caltrans). Defendant Bill Miller previously pled guilty to recruiting others to submit sham bids and to paying almost $1 million in cash bribes to a Caltrans contract manager. The manager himself received a 49-month prison sentence and a similar restitution fine, and a co-conspirator who submitted false bids received 45 months in jail and a $797,940 restitution fine.
  • A Texas judge ordered corporate defendant J&J Korea to pay almost $9 million for wire fraud and conspiracy to restrain trade related to subcontract work for US military hospitals in South Korea. A grand jury indicted two corporate officers for the same conduct in 2022.
  • Three military contractors received their sentences in December 2023 following a jury trial related to their alleged procurement fraud scheme. The defendants’ sentences included prison, supervised release and fines ranging from $50,000 to $250,000.

In December 2023, the PCSF also secured a seven-count indictment using wiretap evidence to charge two forest firefighting services executives with bid rigging, allocating markets and fraud. Wiretap evidence is rarely used in cartel investigations and marks a meaningful step in PCSF’s investigative approach. PCSF likely has already begun obtaining wiretap evidence in other cases and, based on its success in 2023, will continue pursuing aggressive investigative and litigation strategies moving forward.

Partnerships and Collaboration

Taking the PCSF to the global stage, the DOJ announced a joint initiative with Mexico’s Federal Economic Competition Commission and the Canadian Competition Bureau to collaborate on “outreach to the public and business community about anti-competitive conduct, as well as on investigations, using intelligence sharing and existing international cooperation tools” in the run-up to the 2026 FIFA World Cup to be hosted across the three countries.

In addition to its international partnerships for the World Cup, the DOJ is tackling technology with global efforts. In November 2023, DOJ leaders met with G7 competition authorities in Tokyo to discuss competition in digital markets and enforcement priorities. This was one in a series of meetings among authorities that have taken place since 2019 with a goal of setting and issuing guidance on shared priorities for regulating competition in tech. Following the summit, the group published a “communique” grounded in concern around emerging technologies, including risks in the criminal realm. The leaders noted, “As firms increasingly rely on AI to set prices to consumers, there is risk that such tools could facilitate collusion or unfairly raise prices.”

This sentiment is consistent with statements made earlier in the year by DOJ leadership. For example, Principal Deputy Assistant Attorney General Doha Mekki highlighted the role of technology in information exchanges. She described the current “inflection point” of algorithms, data and cloud computing as creating new market realties. Assistant Attorney General Jonathan Kanter stated that artificial intelligence’s “boundless potential” comes with “risks [that] transcend borders.” The consistency of rhetoric and global dedication to tackling the risks of emerging technology signals a potentially busy 2024 in this space.

The DOJ also continued its practice of partnering with fellow domestic law enforcement agencies. For example, the DOJ secured three guilty pleas in August 2023 for bid rigging asphalt paving services contracts in Michigan from 2013 to 2021. The DOJ worked with the Offices of Inspector General for the US Department of Transportation and the US Postal Service, and highlighted the partnership in public statements on the pleas. Deputy Assistant Attorney General Manish Kumar said, “Along with our law enforcement partners, the division will continue to seek justice when corporations and their leaders deprive customers of fair and open competition.” Cross-agency collaboration is a hallmark of the DOJ’s criminal enforcement and there is no reason to believe this practice will change in 2024.

Anything but Generic Remedies

In August 2023, the DOJ announced that it had entered into two unprecedented deferred prosecution agreements (DPAs) to resolve price fixing charges in the generic drug industry against Teva Pharmaceuticals USA, Inc., and Glenmark Pharmaceuticals, Inc. Teva and Glenmark agreed to pay $250 million and $30 million, respectively, in criminal penalties and compliance monitoring, with Teva also obligated to donate $50 million worth of drugs to aid organizations. These agreements included divestitures of the companies’ product lines for the cholesterol drug pravastatin, alleged as central to the alleged price fixing conspiracy underlying the agreements. These arrangements are unusual for two reasons.

DPAs

First, DPAs are typically unfavored by the government and used as incentives for cooperation early in investigations. It is striking that the DOJ entered into these agreements in such an advanced stage of litigation, where five other corporations and three individuals had already admitted to the implicated conspiracy. DPAs are agreements between the government and defendants in which the defendants accept certain penalties in exchange for prosecutors stopping their pursuit of the underlying charges. Prosecutions are “deferred” indefinitely while defendants fulfill their end of the bargain. Although both DPAs and plea agreements involve admitting wrongdoing, DPAs allow defendants resolution without admission of legal guilt. In the event defendants fail to meet the terms of the agreement, the government resumes its prosecution and seeks convictions.

“Extraordinary” Remedial Measures

Second, both DPAs involved unheard of divestitures of product interests in the cholesterol drug pravastatin, with Teva’s DPA requiring an additional measure of $50 million in donated clotrimazole and tobramycin to humanitarian organizations. All three generic drugs were impacted by the charged conspiracy. This remedy is first of its kind—criminal antitrust enforcers historically have sought monetary and prison sentences only. However, DOJ criminal enforcers driving outside of their historic lane is not necessarily inconsistent or surprising. The current administration has repeatedly committed to “using the whole legislative toolbox” in litigation.

Deputy Assistant Attorney General Manish Kumar stated in October 2023 that these divestitures were appropriate in the “heavily regulated” context of generic pharmaceuticals, where a corporate conviction could have precluded Teva and Glenmark’s participation in federal drug programs to such an extent that the companies would have gone out of business. Of course, these are not the first defendants to face corporate convictions in heavily regulated industries, and they are not even the first to do so in this specific alleged conspiracy.

Whether this specific tool will build or break down competition, whether criminal enforcers are equipped to evaluate the impact of divestiture, and whether it is appropriate to test this novel approach in an industry with an alleged prolific conspiracy among major players and thus among potential buyers remains to be seen. For better or worse there will be more data points to answer these and other uncertainties: Kumar noted that the DOJ hopes to implement divestitures as criminal remedies “in other contexts” moving forward.

Investigation Nearing Its End

On November 16, 2023, in a surprising turn of events shortly after the DOJ announced the resolutions with Teva and Glenmark, the DOJ moved to dismiss a February 2020 indictment against Ara Aprahamian, a former senior executive of Taro Pharmaceutical Industries charged with fixing prices, rigging bids and allocating markets for generic drugs. The district court granted the motion to dismiss the indictment with prejudice. Prior to filing the motion, the DOJ had been preparing for a February 2024 criminal trial against Aprahamian. As a result of these recent actions, the DOJ has no remaining public proceedings in connection with its investigation of pricing in the generic drug industry. And, in December 2023, a district court overseeing the multidistrict civil litigation against generic drug manufacturers for the same alleged conduct terminated the DOJ’s intervenor status in the case. Thus, the DOJ’s nearly decade-long investigation of the generic drug industry appears to be ending.

Monaco on Mergers and Corporate Compliance 

In a speech at the Society of Corporate Compliance and Ethics’ Annual Compliance & Ethics Institute, Deputy Attorney General Lisa Monaco emphasized the importance of compliance programs and announced a safe harbor policy for voluntary self-disclosures of antitrust wrongdoing by companies engaged in mergers and acquisitions.

Compliance

Deputy Attorney General Monaco focused her remarks on the increased importance of, and scrutiny on, corporate compliance programs. She noted that under a new initiative, every resolution by the Criminal Division requires companies to add compliance-promoting criteria to compensation systems. She also shared that the Division is enacting “clawback credits” to incentivize tying executive compensation to compliance. Remaining focused on bottom lines, she warned: “Invest in compliance now or your company may pay the price—a significant price—later.” These sharp words are consistent with the DOJ’s increased rhetoric on and policy prioritization of compliance programs throughout 2023.

Mergers & Acquisitions Safe Harbor Policy

Deputy Attorney General Monaco also commented on the recently unveiled DOJ-wide safe harbor allowing companies to report misconduct by the companies they seek to acquire or merge with. The covered conduct must be discovered through the M&A process. Conduct that should have otherwise been disclosed or which could have been publicly known does not count. Conduct already known to the DOJ is not entitled to safe harbor protection either.

Monaco stated, “Going forward, acquiring companies that promptly and voluntarily disclose criminal misconduct within the Safe Harbor period [six months from date of closing], and that cooperate with the ensuing investigation, and engage in requisite, timely and appropriate remediation, restitution, and disgorgement [within one year of closing]—they will receive the presumption of a declination.” In line with remarks by enforcers earlier in the year, Monaco specifically highlighted cybersecurity, tech and national security as areas of heightened risk and thus heightened scrutiny. Corporations in these markets should take heed of the DOJ’s emphasis on corporate compliance in 2024.

Looking Ahead

In 2023, criminal antitrust authorities used novel approaches at every stage of enforcement—from charging decisions to partnerships, to litigation, to remedies— and they show no sign of slowing down in 2024. The emergence of new technologies and a policy promise to forego old guideposts takes the DOJ further from the familiar, and perhaps further from its expertise.

In a high-stakes election year and with an influx of federal funds in infrastructure and defense spaces, the DOJ will likely hit the accelerator sooner than it hits the breaks. Markets that impact maximum voters, including employment, tax-funded government contracts, national security and healthcare, are likely focuses. All considered, it is more important than ever for businesses and individuals to stay up to date on policy priorities, revamp and champion internal compliance programs, and seek agile counsel in the ever-changing landscape of criminal enforcement to avoid costly investigations.

© 2024 McDermott Will & Emery
For more on Antitrust Criminal Enforcement, visit the NLR Antitrust & Trade Regulation section.

Three Individuals Sentenced for $3.5 Million COVID-19 Relief Fraud Scheme

Three Individuals Sentenced for $3.5 Million COVID-19 Relief Fraud Scheme

On February 6, three individuals were sentenced for fraudulently obtaining and misusing Paycheck Protection Program (PPP) loans that the US Small Business Administration (SBA) guaranteed under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

According to court documents and evidence presented at trial, in 2020 and 2021, defendants Khadijah X. Chapman, Daniel C. Labrum, and Eric J.O’Neil submitted falsified documents to financial institutions for fictitious businesses to fraudulently obtain $3.5 million in PPP loans intended for small businesses struggling with the economic impact of COVID-19. Chapman was convicted in November 2023 of bank fraud. Labrum and O’Neil pleaded guilty in 2023 to bank fraud. Following their convictions, Chapman was sentenced to three years and 10 months in prison, Labrum was sentenced to two years in prison, and O’Neil was sentenced to two years and three months in prison.

Read the US Department of Justice’s (DOJ) press release here.

False Claims Act Complaint Filed Against Former President and Co-Owner of Mobile Cardiac PET Scan Provider

The DOJ filed a complaint in the US District Court for the Southern District of Texas under the False Claims Act (FCA) against Rick Nassenstein, former president, chief financial officer, and co-owner of Illinois-based Cardiac Imaging Inc. (CII), which provides mobile cardiac positron emission tomography (PET) scans.

The complaint alleges that Nassenstein caused CII to pay excessive, above-market fees to doctors who referred patients to CII for cardiac PET scans. The government alleges that the compensation arrangements violated the Stark Law, which prohibits health care providers from billing Medicare for services referred by a physician with whom the provider has a compensation arrangement unless the arrangement meets certain statutory and regulatory requirements. Claims knowingly submitted to Medicare in violation of the Stark Law also violate the federal FCA.

The complaint alleges that CII provided cardiac PET scans on a mobile basis and paid the referring physicians, usually cardiologists, to provide physician supervision as required by Medicare rules. From at least 2017 through June 2023, Nassenstein allegedly caused CII to enter into compensation arrangements with referring cardiologists that provided for payment to the cardiologists as if they were fully occupied supervising CII’s scans, even though they were actually providing care to other patients in their offices or patients who were not even on site. CII’s fees also allegedly compensated the cardiologists for additional services the physicians did not actually provide. The complaint alleges that CII paid over $40 million in unlawful fees to physicians and submitted over 75,000 false claims to Medicare for services provided pursuant to referrals that violated the Stark Law.

The lawsuit was originally a qui tam complaint filed by a former billing manager at CII, and the United States, through the DOJ, filed a complaint in partial intervention to participate in the lawsuit.

The case, captioned US ex rel. Pinto v. Nassenstein, No. 18-cv-2674 (S.D. Tex.), follows an $85.5 million settlement in October 2023 by CII and its current owner, Sam Kancherlapalli, for claims arising from this conduct.

Read the DOJ’s press release here.

San Diego Restaurant Owner Charged with Tax and COVID-19 Relief Fraud Schemes

On February 2, a federal grand jury in San Diego returned a superseding indictment charging a California restaurant owner with wire fraud, conspiracy to commit wire fraud, tax evasion, filing false tax returns, conspiracy to defraud the United States, conspiracy to commit money laundering, and failing to file tax returns.

According to the indictment, Leronce Suel, the majority owner of Rockstar Dough LLC and Chicken Feed LLC, conspired with a business partner to underreport over $1.7 million in gross receipts on Rockstar Dough LLC’s 2020 federal corporate tax return. From March 2020 to June 2022, Suel and the business partner then allegedly used this fraudulent return to qualify for COVID-19-related loans pursuant to the PPP and Restaurant Revitalization Funding program. In connection with those loans, Suel also allegedly certified falsely that he used the loan money for payroll purposes only. The indictment alleges that Suel and his business partner laundered the fraudulently obtained funds through cash withdrawals from their business bank accounts and stashed more than $2.4 million in cash in their home.

The indictment further charges that Suel failed to report millions of dollars received in cash and personal expenses paid for by his businesses as income, in addition to reporting false depreciable assets and business losses.

If convicted, Suel faces prison sentences up to 30 years for each count of wire fraud and conspiracy to commit wire fraud, 10 years for each count of conspiracy to commit money laundering, five years for tax evasion and conspiracy to defraud the United States, three years for each count of filing false tax returns, and one year for each count of failing to file tax returns.

Read the DOJ’s press release here.

© 2024 ArentFox Schiff LLP
For more on Regulated Industries, visit the NLR Biotech, Food, Drug section.

Client Alert: New Reporting Requirements Under the Corporate Transparency Act

On January 1, 2024, the Corporate Transparency Act (CTA) took effect. This new federal anti-money laundering law obligates many corporations, limited liability companies and other business entities to report to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), certain information about the entity, the entity’s beneficial owners and the individuals who created or registered the entity to do business. This client alert summarizes the CTA’s key requirements and deadlines. For more detailed information, please review the official “Beneficial Ownership Information Reporting FAQs” and the “Small Entity Compliance Guide” published by FinCEN.

Frequently Asked Questions

WHO MUST REPORT INFORMATION UNDER THE CTA?

The following “reporting companies” are subject to the CTA’s reporting requirements: (a) any U.S. corporation, limited liability company or other entity created by the filing of a document with a state or territorial government office; and (b) any non-U.S. entity that is registered to do business in any U.S. jurisdiction.

The CTA provides for 23 types of entities that are exempt from its reporting requirements, including companies that currently report to the U.S. Securities and Exchange Commission, insurance companies and tax-exempt entities, among others. Most notably, a company does not need to comply with the CTA if it has more than $5,000,000 in gross receipts for the previous year (as reflected in filed federal tax returns), at least one physical office in the U.S. and at least 20 employees in the U.S. For a full list of exemptions, including helpful checklists, please see Chapter 1.2, “Is my company exempt from the reporting requirements?”, of the Small Entity Compliance Guide.

A subsidiary of an exempt entity also will enjoy exempt status.

WHAT INFORMATION MUST BE REPORTED?

A reporting company is required to report the following information to FinCEN, and to keep the information current with FinCEN on an ongoing basis:

  1. The reporting company’s full legal name;
  2. Any trade name or “doing business as” (DBA) name of the reporting company;
  3. The reporting company’s principal place of business;
  4. The reporting company’s jurisdiction of formation (and, for non-U.S. reporting companies, the jurisdiction where the company first registered to do business in the U.S.); and
  5. The reporting company’s Employer Identification Number (EIN).

A reporting company also is required to identify its “beneficial owners” and “company applicant.” A beneficial owner is an individual who either: (a) exercises “substantial control” over the reporting company; or (b) owns or controls at least 25 percent of the ownership interests of the reporting company. A company applicant is an individual who directly files or is primarily responsible for filing the document that creates or registers the reporting company.

A reporting company must report and keep current the following information for each beneficial owner and company applicant:

  1. Full legal name;
  2. Date of birth;
  3. Complete current address;
  4. Unique identifying number and issuing jurisdiction from, and image of, one of the following non-expired documents:
    a. U.S. passport;
    b. State driver’s license; or
    c. Identification document issued by a state, local government or tribe.

WHEN ARE REPORTS DUE?

A reporting company that was first formed or registered to do business in the United States before January 1, 2024 will need to file its initial report with FinCEN no later than January 1, 2025.

A reporting company that is first formed or registered to do business in the United States between January 1, 2024 and January 1, 2025 will need to file its initial report with FinCEN within 90 calendar days after the effective date of its formation or registration to do business.

A reporting company that is first formed or registered to do business in the United States on or after January 1, 2025 will need to file its initial report with FinCEN within 30 calendar days after the effective date of its formation or registration to do business.

HOW DOES MY COMPANY FILE REPORTS WITH FINCEN?

Reports must be filed electronically through the BOI E-Filing System. For additional instructions and other technical guidance, please see the Help & Resources page.

WHAT HAPPENS IF MY COMPANY DOES NOT COMPLY WITH THE CTA?

At the time the filing is made, a reporting company is required to certify that its report or application is true, correct, and complete. Therefore, it is the reporting company’s responsibility to identify its beneficial owners and verify the accuracy of all reported information.

A person or reporting company who willfully violates the CTA’s reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues, plus criminal penalties of up to two years’ imprisonment and a fine of up to $10,000.

In the case of an accidental violation – for instance, if an initial report inadvertently contained a typo or outdated information – the CTA provides a safe harbor for reporting companies to correct the original report within 90 days after the deadline for the original report. If this safe harbor deadline is missed, the reporting company and individuals providing inaccurate information may be subject to the CTA’s civil and criminal penalties.

OTHER THAN FILING ACCURATE REPORTS, HOW CAN MY COMPANY STAY COMPLIANT?

A reporting company should consider taking the following actions to facilitate compliance with the CTA’s reporting requirements:

  • Amending existing governing documents, such as LLC or stockholder agreements, to require beneficial owners to promptly provide required information and otherwise cooperate in the company’s compliance with the CTA;
  • Designating an officer to oversee the company’s initial and ongoing CTA reporting;
  • Maintaining, reviewing and updating records on a regular cadence to reflect equity transfers, option grants and other transactions that affect ownership interest calculations; and
  • Developing a secure process for collecting and storing a beneficial owner’s photo identification and other sensitive information for CTA reporting purposes.
© Copyright 2024 Stubbs Alderton & Markiles, LLP
For more news on CTA Reporting Requirements, visit the NLR Financial Institutions & Banking section.

Top Risks for Businesses in 2024

Just weeks into 2024, it is already clear that uncertainty will be the watchword. Will the economic soft landing of 2023 persist into 2024? Will labor unrest, strong in 2023, settle down as inflation cools? Will inflation remain tamed? Will the U.S. elections bring continuity or a new administration with very different views on the role of the U.S. in the world and in regulating business?

Uncertainty is also fueling a complex risk environment that will require monitoring global developments more so than in the past. As outlined below, geopolitical risks are present, multiple, interconnected and high impact. International relations have traditionally fallen outside the mandate of most C-Suites, but how the U.S. government responds to geopolitical challenges will impact business operations. Beyond additional disruptions to global trade, businesses in 2024 will face risks associated with expanding protectionist economic policies, climate change impacts, and AI-driven disruptors.

Geopolitical Tensions Disrupting Global Trade

The guardrails are coming off the international system that enshrines the ideals of preserving peace and security through diplomatic engagement, respecting international borders (not changing them through military might) and ensuring the free flow of global trade. In 2022, the world was shocked by Russia’s invasion of Ukraine, but it has taken time for the full impact to reverberate through the international system. While political analysts write on a “spillover of conflict,” the more insidious impact is that more leaders of countries and non-state groups are acting outside the guardrails because they are no longer deterred from using military force to achieve political goals, making 2024 ripe for new military conflicts disrupting global trade beyond the ongoing war in Europe.

In October 2023, Hamas launched a war from Gaza against Israel. Thus far, fighting has spread to the West Bank, between Israel and Lebanese Hezbollah in the north, and to the Red Sea, with Iranian-backed Houthis attacking shipping through the strategic Bab al Mandab strait. Container ships and oil tankers, to avoid the risks, are re-routing to the Cape of Good Hope, adding two weeks of extra sailing time, with the associated costs. Insurance premiums for cargo ships sailing in the eastern Mediterranean have skyrocketed, with some no longer servicing Israeli ports. Companies and retailers with tight delivery schedules are switching to airfreight, which is expected to drive up airfreight rates.

Iran, emboldened by its blossoming relationship with Russia as one of Moscow’s new arms suppliers, is activating its proxy armies in Yemen, Iraq, Syria and Lebanon to attack Western targets. In a two-day period in January 2024, the Iran Revolutionary Guards directly launched strikes in Syria, Iraq and Pakistan. Nuclear-armed Pakistan retaliated with a cross border strike in Iran. While there are many nuances to these incidents, it is evident that deterrence against cross-border military conflict is eroding in a region with deep, festering grievances among neighbors. Iran is in an escalatory mode and could resume harassing shipping in the Persian Gulf and the strategic Strait of Hormuz, where about a fifth of the volume of the world’s total oil consumption passes through on a daily basis.

In East Asia, North Korea is also emboldened by the changing geopolitical environment. Pyongyang, too, has become a major supplier of weaponry to Moscow for use in Ukraine. While Russia (and China) in the past have constructively contained North Korean predilection for aggression against its neighbors, Supreme Leader Kim Jong Un may believe the time is ripe to change the status quo. Ominously, in a Jan. 15 speech before the Supreme People’s Assembly (North Korea’s parliament), Kim rejected the policy of reunification with South Korea and proposed incorporating the country into North Korea “in the event of war.” While North Korean leaders frequently revert to brinksmanship and aggressive language, Kim’s speech reflects confidence of a nuclear power, aligned with Russia against a shared adversary – South Korea, which is firmly aligned with the G7 consensus on Russia. A war in the Korean peninsula would be felt around the world because East Asia is central to global shipping and manufacturing, disrupting supply chains, as well as the regional economy.

China is also waiting for the right moment to “unite” Taiwan with the mainland. Beijing has seen the impact of Western sanctions on Russia over Ukraine and has been deterred from aiding the Russian war effort. In many ways, China has benefited from these sanctions and the reorientation of global trade. Also, Russia, with its far weaker economy, has proven surprisingly resilient to sanctions, another lesson for China. Meanwhile, the Taiwanese people voted in January and returned for a third time the ruling party that strongly rejects Chinese territorial claims. Tensions are high, with the Chinese military once again harassing Taiwanese defenses. For Beijing, the “right moment” could fall this year should conflict break out on the Korean peninsula, which would tie the U.S. down because of the Mutual Defense Treaty.

The uncertainty here is not that there are global tensions, but how the U.S. will respond as they develop and how U.S. businesses can navigate external shocks. Will the U.S. be drawn into a new war in the Middle East? Can the U.S. manage multiple conflicts, already deeply involved in supporting Ukraine? Is the U.S. economy resilient enough to withstand trade disruptions? How can businesses strengthen their own resiliency?

Economic Protectionism Increasing Costs and Risks

Geopolitical tensions, the global pandemic and the unequal benefits of globalization are impacting economic policies of the U.S. and the political discourse around the merits of unrestrained free trade. Protectionist economic policies are creeping in, under the nomenclature of “secure supply chains,” “friend-shoring” and “home-shoring.” The U.S. has imposed tariffs on countries (even allies) accused of unfair trade practices and has foreclosed access to certain technologies by unfriendly countries, namely China.

While the response to some of these trade restrictions are new trade agreements with “friends” to regulate access under preferred terms, in essence creating multiple “friends” trade blocs for specific sectors, other responses are retaliatory, including counter tariffs and export restrictions or outright bans. In 2024, the U.S. economy will see the impact of these trade fragmentation policies in acute ways, with upside risks of new business opportunities and downside risks of supply chain disruptions, critical resource competition, increased input costs, compliance risks and increased reputational risks.

Trade with China, which remains significant and important to the stability of the U.S. economy, will pose new risks in 2024. While Washington and Beijing have agreed to some political and security guardrails to manage the relationship, economic competition is unrestrained and stability in the bilateral relations is not guaranteed. The December 2023 bipartisan report by the House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party, with its 150 recommendations on fundamentally resetting economic and technological competition with China, if even partially adopted, risks reigniting the trade war.

2024 is a presidential election year for the U.S. A change of control of the executive branch could result in many economic and regulatory policy reversals. The definition of “friend” could shift or narrow. Restrictions on trade with China could accelerate.

Impacts of Climate Change and Sustainability Policies

2023 was the hottest year on record, and El Niño conditions are expected to further boost the warming trend. Many regions experienced record-breaking wildfire activity in 2023, including Canada where 18 million hectares of land burned. Extreme storms caused life-threatening flooding in Europe, Asia and the Americas. 2024 is expected to bring even more climate hazards. The impacts will be physical and financial, including growing insurance losses and adverse impacts on operations and value chain. Analysts expect that in 2024, the economic and financial costs of adverse health impacts from climate change will increase, with risks related to the spread of infectious disease, insufficient access to clean water, and physical harm to the elderly and vulnerable. The direct economic effect will be on health systems, but also loss of productivity due to extreme weather incidents and effects of epidemics.

Energy transition to low-carbon emissions is underway in the U.S., but it is uneven and still uncertain. The financial market is investing in an impressive number of startups and large-scale projects revolving around cleantech. Still, there is hesitancy on the opportunity and risks of sustainability. Thus far, progress towards sustainability goals has been private sector-led and government-enabled. There is a risk that government incentive programs encouraging the transition to low-carbon energy could be reversed or curtailed under a new administration.

In 2024, some companies will face more climate disclosure compliance requirements. The Securities and Exchange Commission (SEC) is expected to release its final rule on climate change disclosures. The final action has been delayed several times because of pushback by public companies on some of the requirements, including Scope 3 greenhouse gas emission disclosures (those linked to supply chains and end users). California has not waited for the SEC’s final rule: In October 2023, Gov. Gavin Newsom signed into law legislation that will require large companies to disclose greenhouse gas emissions. The California climate laws go into effect in 2026, but companies will need to start much earlier to build the capabilities to plan, track and report their carbon footprint. For U.S. companies doing business in the European Union, they will need to comply with the EU Corporate Sustainability Reporting Directive, with the rules coming into force mid-2024.

Disruptive Technology

In 2023, generative AI was the talk of the town; in 2024, it will be the walk. Companies are popping up with new tools for every imaginable sector, to increase efficiency, task automation, customization, personalization and cost reduction. Business leaders are scrambling to integrate AI to gain a competitive edge, while navigating the everyday risks related to privacy, liability and security. While there are concerns that AI will displace humans, there is a growing consensus that while some jobs will disappear, people will focus on higher value work. That said, new rounds of labor disruptions linked to workforce transition are likely in 2024.

2024 will also bring AI-generated misinformation and disinformation. Bad actors will spread “synthetic” content, such as sophisticated voice cloning, doctored images and counterfeit websites, seeking to manipulate people, damage companies and economies, and foment dissent.

In 2024, around 2 billion people in more than 50 countries will vote in elections at risk of manipulation by misinformation and disinformation, which could destabilize the real and perceived legitimacy of newly elected governments, risking political unrest, violence, terrorism and erosion of democratic processes. Large democracies will hold elections in 2024, including the U.S., the EU, Mexico, South Korea, India, Pakistan, Indonesia and South Africa. Synthetic content can be very difficult to detect, while easy to produce with AI tools.

This is not a theoretical threat; synthetic content is already being disseminated in the U.S., targeting New Hampshire voters with robocalls that share fake recorded messages from President Biden encouraging people not to vote in the primary election. The U.S. is already polarized with citizens distrustful of the government and media, a ready vulnerability. Businesses are not immune. Notably, CEOs have stood apart, with higher ratings for trustworthiness and risk being called upon to vouch for “truth” (and becoming collateral damage in the fray).

AI-powered malware will make 2023 cyber risks look like child’s play. Attackers can use AI algorithms to find and exploit software vulnerabilities, making attacks precise and effective. AI can help hackers quickly identify security measures and evade them. AI-created phishing attacks will be more sophisticated and difficult to detect because the algorithms can assess larger amounts of piecemeal information and craft messages that mimic communication styles.

The role of states backing cyber armies to spread disinformation or steal information is growing and is part and parcel of the erosion of the existing international order. States face little deterrence from digital cross-border attacks because there are yet to be established mechanisms to impose real costs.

© 2024 Bradley Arant Boult Cummings LLP
For more on Business Risks, visit the NLR Corporate & Business Organizations section.

U.S. Immigration Strategies to Attract, Retain, and Develop Talent

Amid the evolving global economy throughout the past year, employers may be reassessing their approach to talent acquisition and retention. Companies are navigating uncertainty by recalibrating mobility programs, aiming to not only attract but also retain talent to fulfill a skills gap in the U.S. workforce. Central to leveraging foreign talent is the power of immigration branding and messaging. A strategic emphasis on employee longevity proactively curtails workforce attrition and preempts potential labor shortages in the future.

Attracting talent

Understanding and leveraging avenues offered by U.S. immigration laws can be pivotal in securing the right skills and meeting business demands to drive success. Employers commonly leverage F-1 student OPT/STEM OPT training and the H-1B and L-1 work visa programs to source foreign workers in the talent ecosystem.

Foreign students with work authorization pursuant to OPT/STEM OPT are prime candidates for expanding a company’s talent pool with long-term development potential. Employers may attract foreign students through internships while the student completes their academic program, post-graduation employment pursuant to OPT/STEM OPT, and subsequent work visa and green card sponsorship. For most foreign students, switching from a student visa to a work permit is often challenging due to the restrictions and limited availability of H-1B visas. However, companies with an overseas presence may be able to set up strategically located hubs abroad to recruit and employ foreign nationals who were not able to obtain an H-1B visa, and then transfer them back to the United States with L-1 intracompany transfer visas following their employment abroad over at least one year. A company’s corporate immigration policy outlining support of various immigration pathways, and benchmarked against the policy of industry peers, is a competitive tool to meet foreign workers’ needs and attract high-potential talent.

Retaining talent

In response to the need for talent retention, employers are strategically tapping into their existing talent pool to bolster operational efficiency. With post-COVID-19 employees seeking greater fulfillment, employers may want to consider proactively refining their retention efforts to include top-tier foreign talent.

Companies are increasingly turning to their internal talent reservoirs to bridge skill gaps and curtail additional hiring costs. Retaining current talent is becoming pivotal for success, mobility, and business continuity. To address the evolving landscape of talent retention and the demand from foreign talent for immigration support, employers may consider several key strategies.

Various immigration pathways offer avenues for continued employment, providing stability to existing talent. For example, some companies leverage sponsorship for work visa programs and employment-based green cards to retain skilled foreign workers. Payment of legal fees and the provision of immigration counsel are initial steps in this effort, and other offerings including immigration seminars for employees and family members, an internal immigration portal with FAQs and self-service features that provide status reports, and access to documents and opportunities for interaction with the immigration team are also important. Employers leverage streamlined extension processes for work authorization to ensure continuity for employees and the business without disruptions. Embracing technological advancements in immigration processes may streamline procedures, reduce processing times, and minimize errors. Further, a robust green card sponsorship program signals a long-term commitment to retain valuable talent and grants employees a sense of security and stability in their professional journey within the company. Clearly defined benchmarks when the company initiates green card sponsorship are not only a recruitment and retention tool but also ensure that foreign workers do not lose immigration status or work authorization.

Adaptability and foresight also benefit companies navigating corporate immigration policy frameworks. Companies can implement consistent yet flexible approaches to immigration sponsorship that cater to both business needs and the foreign worker’s circumstances. For example, timing adjustments in initiating green card sponsorship may prevent work authorization gaps. Evaluating risks versus benefits might lead to early green card sponsorship for students to safeguard their status and work authorization if they are not selected in the H-1B lottery. Exploring alternative sponsorship options, such as supporting family-based or self-sponsored petitions, could be viable alternatives for a company to retain critical talent and may streamline the process and save time. Finally, recognizing and addressing the needs of dependents, such as spouses and children, within the immigration sponsorship process may be determinative to retain valuable talent.

Developing talent

Companies recognize the importance of not just attracting and retaining foreign talent but also developing their skills and potential. With strategic planning, immigration strategies can help advance the capabilities of international talent within a corporate setting.

Demand for H-1B visas has increased while the number of available visas has remained static. In response, employers are assisting international talent to develop their credentials to become eligible for an O-1 visa as an alternative. The O-1 visa for individuals with extraordinary abilities allows companies to support foreign workers in advancing their careers by recognizing their exceptional talent and contributions. Although the standard to qualify is high, for many foreign workers there are specific steps they can take to proactively bolster their resume toward becoming “O-1 visa ready.”

Sponsorship of certain visa categories, such as EB-1A for individuals with extraordinary ability or a National Interest Waiver to bypass the requirement to test the labor market, may encourage innovation and leadership among an employer’s foreign workers. Elevating a green card process to a higher preference category generally accelerates the process and the prospect of a higher preference category may lead foreign nationals to excel in their fields, drive innovation, and propel critical progress for the company.

Multinational employers are increasingly implementing international rotational programs and cross-border exchanges to foster skill development and broaden experiences. This approach not only addresses internal labor shortages but also mitigates the need for expensive talent searches and replacements. These programs offer benefits akin to longer-term assignments, facilitating knowledge transfer and nurturing company culture at a reduced cost. Such exposure can empower foreign workers with diverse market insights, enriching their skill sets and fostering a global perspective. Moreover, it allows businesses to harness internal expertise to bolster critical initiatives. However, the rise in popularity of these short-term rotation and remote work programs may invite heightened compliance measures, including increased audits and inspections. Hence, employers should anticipate a trend towards more rigorous immigration requirements aligning with labor, tax, and social security laws.

©2024 Greenberg Traurig, LLP. All rights reserved.
For more on Immigration Strategies, visit the NLR Immigration section.

Tax Relief for American Families and Workers Act of 2024

On January 17, 2024, Senate Finance Committee Chairman Ron Wyden (D-Ore.) and House Ways and Means Committee Chairman Jason Smith (R-Mo.) released a bill, the “Tax Relief for American Families and Workers Act of 2024” (“TRAFA” or the “bill”). All of the provisions in the bill are taxpayer favorable, except those that apply to the “employee retention tax credit”.

In short, the bill, if enacted as introduced, would:
• Allow taxpayers to deduct rather than amortize domestic research or experimental costs until 2026. Under current law, domestic research and experimental expenditures incurred after December 31, 2021 must be amortized over a 5-year period. Starting in 2026, taxpayers would once again be required to amortize those costs (as under current law) over five years (rather than deducting them immediately).
• Allow taxpayers to calculate their section 163(j) limitation on interest deductions without regard to any deduction allowable for depreciation, amortization, or depletion (i.e., as a percentage of earnings before interest, taxes, depreciation, and amortization (EBITDA) rather than earnings before interest and taxes (EBIT)) for tax years 2024-2026. This provision would generally increase the limitation and allow greater interest deductions for taxpayers subject to section 163(j).
• Retroactively extend the 100% bonus depreciation for qualified property placed in service after December 31, 2022 until January 1, 2026 (January 1, 2027, for longer production period property and certain aircraft). 100% bonus depreciation, enacted as part of the Tax Cuts and Jobs Act (the “TCJA”), expired for most property placed into service after December 31, 2022. Under existing law, bonus depreciation is generally limited to 80% for property placed into service during 2023, 60% for 2024, and 40% for 2025.
• Increase the maximum amount a taxpayer may expense of the cost of depreciable business assets under section 179 from $1.16 million in 2023 for qualifying property placed in service for the taxable year, to $1.29 million. The $1.16 million amount is reduced by the amount by which the cost of the property placed in service during the taxable year exceeds $2.89 million. Under the bill, the $2.89 amount is increased to $3.22 million. The provision applies to property placed in service in taxable years beginning after December 31, 2023.
• Effectively grant certain tax treaty benefits to residents of Taiwan, including (i) reducing the 30% withholding tax on U.S.-source interest and royalties from 30% to 10%, (ii) reducing the 30% withholding tax on U.S.-source dividends from to 15% or 10% (if the recipient owns at least 10% of the shares of stock in the payor corporation), and (iii) applying the “permanent establishment” threshold (rather than the lower “trade or business” threshold) for U.S. federal income taxation.
• Extend the qualified disaster area rules enacted in 2020 for 60 days after the date of enactment of the bill; exempt from tax certain “qualified wildfire relief payments” for tax years beginning in 2020 through 2025; exempt certain “East Palestine train derailment payments” from tax.
• Enhance the low income housing tax credit and tax-exempt bond financing rules.
• Increase the threshold for information reporting on IRS forms 1099-NEC and 1099-MISC from $600 to $1,000 for payments made on or after January 1, 2024 and increase the threshold for future years based on inflation.
• End the period for filing employee retention tax credit claims for tax years 2020 and 2021 as of January 31, 2024, and increase the penalties for aiding and abetting the understatement of a tax liability by a “COVID–ERTC promoter”.
• Increase the maximum refundable portion of the child tax credit from $1,600 in 2023 (out of the $2,000 maximum per child tax credit under current law) to $1,800 in 2023, $1,900 in 2024, and $2,000 in 2025; modify the calculation of the maximum refundable credit amount by providing that taxpayers first multiply their earned income (in excess of $2,500) by 15 percent, and then multiply that amount by the number of qualifying children (so that a taxpayer with two children would be entitled to double the amount of refundable credit); adjust the $2,000 maximum per child tax credit for inflation in 2024 and 2025; and allow taxpayers in 2024 and 2025 to use earned income from the prior taxable year to calculate their credit. These provisions would be effective for tax years 2023-2025, after which the maximum per child credit would revert to $1,000.

The bill does not increase the $10,000 limit on state and local tax deductions, or increase the $600 reporting threshold for IRS Form 1099-K (gift cards, payment apps, and online marketplaces).
The bill cleared the House Ways and Means Committee by a vote of 40 to 3 and awaits a vote by the full House (which is not expected to occur before January 29). Although the bill appears to have broad partisan support so far, the timing of final passage and enactment is uncertain.
The remainder of this blog post provides a summary of the key business provisions included in TRAFA.

Summary of Key Business Provisions
1. Retroactive extension for current deduction of domestic research or experimental costs that are paid or incurred in tax years beginning after December 31, 2021, and before January 1, 2026 under Section 174.
Under current Section 174, specified research or experimental expenditures incurred in taxable years beginning after December 31, 2021 may not be currently deducted. Instead, the expenditures must be capitalized and amortized ratably over a 5-year period (or, in the case of expenditures that are attributable to research that is conducted outside of the United States, over a 15-year period). Before the TCJA, enacted in 2021, research or experimental expenditures were generally deductible in the year in which they were incurred.
The bill proposes to allow taxpayers to deduct domestic research or experimental costs until 2026. However, foreign research or experimental expenditures would continue to be amortizable over 15 years (as under current law).
Generally, a taxpayer who had already amortized the appropriate portion of its domestic research or experimental costs incurred in the 2022 tax year but wanted to switch to deducting these costs would be able to do so by electing to treat the application of the TRAFA provision as a Section 481(a) adjustment for the 2023 tax year and the adjustment would be taken into account ratably in the 2023 and 2024 federal income tax returns.
2. Retroactive extension to allow depreciation, amortization, or depletion in determining the limitation on business interest expense deduction under Section 163(j) for taxable years beginning before January 1, 2026.
Under current section 163(j), a deduction for business interest expense is disallowed to the extent it exceeds the sum of (i) business interest income, (ii) 30% of adjusted taxable income (“ATI”), and (iii) floor plan financing interest expense in the current taxable year. Any disallowed business interest expense may be carried forward indefinitely to subsequent tax years. The interest limitation generally applies at the taxpayer level (although special rules apply in the case of partnerships and S-corporations). Furthermore, in the case of a group of affiliated corporations that file a consolidated return, the limitation applies at the consolidated tax return filing level.
For tax years beginning before January 1, 2022, the ATI of a taxpayer was computed without regard to (i) any item of income, gain, deduction, or loss that is not properly allocable to a trade or business, (ii) business interest expense and income, (iii) net operating loss deductions under section 172, (iv) deductions for qualified business income under section 199A, and (v) deductions for depreciation, amortization, or depletion (“EBITDA computation”). However, for tax years beginning on or after January 1, 2022, ATI is computed taking into account deductions for depreciation, amortization, or depletion (“EBIT computation”). The EBIT computation generally allows less interest deductions than the EBITDA computation.
The bill proposes to apply the EBITDA computation (instead of the EBIT computation) for taxable years beginning before January 1, 2026. the bill provides that this proposal generally is effective for taxable years beginning after December 31, 2023, but includes an elective transition rule, details to be provided by the Secretary of the Treasury, to allow a taxpayer to elect to apply the EBITDA computation for tax years beginning after December 31, 2021.
3. Extension of 100% bonus depreciation deduction for certain business property placed in service during the years 2023 through 2025 under Section 168(k).
A taxpayer generally must capitalize the cost of property used in a trade or business or held for the production of income and recover the cost over time through annual deductions for depreciation or amortization. Changes to section 168(k), under the TCJA, allowed an additional first-year depreciation deduction, known as bonus depreciation, of 100% of the cost of MACRS property with a depreciable life of 20 years or less, water utility property, qualified improvement property and computer software placed into service after September 27, 2017 and before January 1, 2023. Under current law, property placed in service from January 1, 2023 through December 31, 2026 qualifies for partial bonus depreciation – 80% bonus depreciation for 2023, 60% bonus depreciation for 2024, 40% bonus depreciation for 2025 and 20% bonus depreciation for 2026.
The bill proposes to extend the 100% bonus depreciation for property placed in service during the years 2023 through 2025 and to retain the 20% bonus depreciation for property placed in service in 2026.
4. Increase in limitations on expensing of depreciable business assets under Section 179 to $1.29 million and increase the phaseout threshold amount to $3.22 million.
Generally, under Section 179, a taxpayer may elect to immediately deduct the cost of qualifying property, rather than to claim depreciation deductions over time, subject to limitations discussed below. Qualifying property is generally defined as depreciable tangible personal property, off-the-shelf computer software, and qualified real property (including certain improvements (e.g., roofs, heating, and alarms systems) made to nonresidential real property after the property is first placed in service) that is purchased for use in the active conduct of a trade or business. Under current law, the maximum amount a taxpayer may expense is $1 million of the cost of qualifying property placed in service for the taxable year and the $1 million is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $2.5 million. The $1 million and $2.5 million amounts are indexed for inflation for taxable years beginning after 2018. For taxable years beginning in 2023, the total amount that may be expensed under current law is $1.16 million, and the phaseout threshold amount is $2.89 million.
The bill proposes to increase the maximum amount a taxpayer may expense to $1.29 million, reduced by the amount by which the cost of qualifying property exceeds $3.22 million, each in connection with property placed in service in taxable years beginning after December 31, 2023. The $1.29 million and $3.22 million amounts would be adjusted for inflation for taxable years beginning after 2024.
5. Adoption of the United States-Taiwan Expedited Double-Tax Relief Act, “treaty-like” relief for Taiwan residents and the United States-Taiwan Tax Agreement Authorization Act, a framework for the negotiation of a tax agreement between the President of the United States and Taiwan.
The United States does not have formal diplomatic relations with Taiwan, and therefore negotiating a tax treaty with Taiwan raises significant difficulties.
Under the bill, new section 894A would grant certain tax treaty-like benefits to qualified residents of Taiwan. A reduced rate of withholding tax would apply to interest, dividends, royalties, and certain other comparable payments from U.S. sources received by qualified residents of Taiwan. Instead of the 30% withholding tax rate generally imposed on U.S.-source income received by nonresident aliens and foreign corporations, interest and royalties would be subject to a 10% withholding tax rate and dividends would be subject to a 15% withholding tax rate (or a 10% withholding tax rate if paid to a recipient that owns at least ten percent of the shares of stock in the corporation and certain other conditions are met).
Additionally, under new section 894A, income of a qualified resident of Taiwan that is effectively connected to a U.S. trade or business would be subject to U.S. income tax only if such resident has a permanent establishment in the U.S., which is a higher threshold than the U.S. trade or business standard generally applied to non-U.S. persons under the Internal Revenue Code. Furthermore, only the taxable income effectively connected to the United States permanent establishment of a qualified resident of Taiwan would be subject to U.S. income tax.
No U.S. Tax would be imposed under section 894A on wages of qualified residents of Taiwan in connection with personal services performed in the United States and paid by a non-U.S. person.
Also, the proposal would impose general anti-abuse standards similar to those in section 894(c) to deny benefits when payments are made through hybrid entities. The proposed rules are applicable only if, and when, the Secretary of Treasury determines that reciprocal provisions apply to U.S. persons with respect to income sourced in Taiwan.
The bill also provides a framework for the negotiation of a tax agreement between the President of the United States and Taiwan. Specifically, the bill would authorize the President to negotiate and enter into one or more non-self-executing tax agreements to provide for bilateral tax relief with Taiwan beyond that provided for in proposed section 894A. Any such negotiation would only be permitted after a determination by the Secretary of the Treasury that Taiwan has provided benefits to U.S. persons that are reciprocal to the benefits provided to qualified residents of Taiwan under proposed section 894A. Furthermore, the bill would require that any provisions in such a tax agreement must conform with provisions customarily contained in U.S. bilateral income tax conventions, as exemplified by the 2016 U.S. Model Income Tax Convention, and any such tax agreement may not include elements outside the scope of the 2016 U.S. Model Income Tax Convention.
6. Changes in threshold for reporting on Forms 1099-NEC and 1099-MISC for payments by a business for services performed by an independent contractor or subcontractor and for payments of remuneration for services from $600 to $1,000 and for payments of direct sales from $5,000 to $1,000.
Under current law, a person engaged in a trade or business who makes certain payments aggregating $600 or more in any taxable year to a single recipient in the course of the trade or business is required to report those payments to the IRS. This requirement applies to fixed or determinable payments of income as well as nonemployee compensation, generally reported on Form 1099-MISC, Miscellaneous Information, or Form 1099-NEC, Nonemployee Compensation. In addition, any service recipient engaged in a trade or business and paying for services is required to file a return with the IRS when aggregate payments to a service provider equal $600 or more in a calendar year. Additionally, a seller who sells at least $5,000 in the aggregate of consumer products to a buyer for resale anywhere other than a permanent retail establishment is required to report the sale to the IRS.
The bill proposes to set the reporting threshold for the payments described in the preceding paragraph at $1,000 for a calendar year (indexed for inflation for calendar years after 2024), effective for payments made after December 31, 2023.
7. New Enforcement Provisions with Respect to COVID-Related Employee Retention Tax Credit
Under current law, an eligible employer can claim a refundable Employee-Retention Tax Credit (ERTC) against applicable employment taxes for calendar quarters in 2020 and 2021 in an amount equal to a percentage of the qualified wages with respect to each employee of such employer for such calendar quarter. The percentage is 50% of qualified wages paid after March 12, 2020, and before January 1, 2021, and 70% of qualified wages for calendar quarters beginning after December 31, 2020, and before January 1, 2022, subject to a maximum amount of wages per employee. An eligible employer may claim the ERTC on an amended employment tax return (Form 941-X) if the employer did not claim (or seeks to correct) the credit on its original employment tax return. For tax year 2020, an amended employment tax return must be filed by April 15, 2024, and for tax year 2021, by April 15, 2025.
The bill proposes to end the period for filing ERTC claims for both 2020 and 2021 as of January 31, 2024. Additionally, the bill would impose large penalties on any “COVID–ERTC promoter” who aids or abets the understatement of a tax liability or who fails to comply with certain due diligence requirements relating to the filing status and amount of certain credits. A COVID–ERTC promoter is defined as any person that provides aid, assistance or advice with respect to an affidavit, refund, claim or other document relating to an ERTC or to eligibility or to the calculation of the amount of the credit, if the person (x) charges or receives a fee based on the amount of the ERTC refund or credit, or (y) meets a gross receipts test. The proposed penalties for an ERTC promoter that aids and abets understatement of a tax liability is the greater of $200,000 ($10,000 in the case of an ERTC promoter that is a natural person) or 75% of the gross income of the ERTC promoter from providing aid, assistance, or advice with respect to a return or claim for ERTC refund or a document relating to the return or claim.
Furthermore, the bill would extend the statute of limitations period on assessment for all quarters of the ERTC to six years from the later of (1) the date on which the original return for the relevant calendar quarter is filed, (2) the date on which the return is treated as filed under present-law statute of limitations rules, or (3) the date on which the credit or refund with respect to the ERTC is made.

© 2024 Proskauer Rose LLP.
For more on Taxes, visit the NLR Tax section.

FTC Announces 2024 Thresholds for Merger Control Filings under HSR Act and Interlocking Directorates under the Clayton Act

The Federal Trade Commission (“FTC”) has increased the dollar jurisdictional thresholds necessary to trigger the reporting requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”), and the dollar value of each of the six filing fee thresholds; the revised thresholds will become effective 30 days after the date of publication in the Federal Register. The daily maximum civil penalty for being in violation of the HSR Act has increased, and is, as of January 10, 2024, $51,744.

The FTC also increased the thresholds for interlocking directorates under Section 8 of the Clayton Act; these revised thresholds are in effect as of January 22, 2024.

Revised HSR Thresholds

Under the HSR Act, parties involved in proposed mergers, acquisitions of voting securities, unincorporated interests or assets, or other business combinations (e.g., joint ventures, exclusive license deals) that meet certain thresholds must report the proposed transaction to the FTC and the Antitrust Division of the U.S. Department of Justice (“DOJ”) unless an exemption applies. The parties to a proposed transaction that requires notification under the HSR Act must observe a statutorily prescribed waiting period (generally 30 days) before closing. Under the revised thresholds, transactions valued at $119.5 million or less are not reportable under the HSR Act.

A transaction closing on or after the date the revised thresholds become effective may be reportable if it meets the following revised criteria:

Size-of-Transaction Test The acquiring person will hold, as a result of the transaction, an aggregate total amount of voting securities, unincorporated interests, or assets of the acquired person valued in excess of $478 million;

or

The acquiring person will hold, as a result of the transaction, an aggregate total amount of voting securities, unincorporated interests, or assets of the acquired person valued in excess of $119.5 million but not more than $478 million, and the Size-of-Person thresholds below are met.
Size-of-Person
Test		 One party (including the party’s ultimate parent entity and its controlled subsidiaries) has at least $239 million in total assets or annual sales, and the other has at least $23.9 million in total assets or annual sales.

The full list of the revised thresholds is as follows:

Original Threshold 2023 Threshold 2024 Revised Threshold
$10 million $22.3 million $23.9 million
$50 million $111.4 million $119.5 million
$100 million $222.7 million $239 million
$110 million $245 million $262.9 million
$200 million $445.5 million $478 million
$500 million $1,113.7 million $1,195 million
$1 billion $2,227.4 million $2,390 million

The filing fees for reportable transactions and the six filing fee tiers also have been updated, as follows:

Filing Fee Size of Transaction under the Act
$30,000 For transactions valued in excess of $119.5 million but less than $173.3 million
$105,000 For transactions valued at $173.3 million or greater but less than $536.5 million
$260,000 For transactions valued at $536.5 million or greater but less than $1,073 million
$415,000 For transactions valued at $1,073 million or greater but less than $2,146 million
$830,000 For transactions valued at $2,146 million or greater but less than $5,365 million
$2.335 million For transactions valued at $5,365 million or more

The filing fee tiers, introduced in 2023, are adjusted annually to reflect changes in the GNP for the previous year.

The HSR Act’s dollar thresholds are only part of the analysis to determine whether a particular transaction must be reported to the FTC and DOJ; a full analysis requires consideration of exemptions to the filing requirements that may be available to an acquiror. Failure to notify the FTC and DOJ under the HSR Act remains subject to a statutory penalty of up to $51,744 per day of noncompliance.

Revised Thresholds for Interlocking Directorates

Section 8 of the Clayton Act prohibits one person from simultaneously serving as an officer or director of two corporations if: (1) each of the “interlocked” corporations has combined capital, surplus, and undivided profits of more than $48,559,000 (up from $45,257,000); (2) each corporation is engaged in whole or in part in commerce; and (3) the corporations are “by virtue of their business and location of operation, competitors, so that the elimination of competition by agreement between them would constitute a violation of any of the antitrust laws.”1

Section 8 provides several exemptions from the prohibition on interlocks for arrangements where the competitive overlaps “are too small to have competitive significance in the vast majority of situations.”2 A corporate interlock does not violate the statute if (1) the competitive sales of either corporation are less than $4,855,900 (up from $4,525,700); (2) the competitive sales of either corporation are less than 2 percent of that corporation’s total sales; or (3) the competitive sales of each corporation are less than 4 percent of that corporation’s total sales. The DOJ has been active recently in identifying and achieving remediation of interlocks that may violate Section 8.3

1 15 U.S.C. § 19(a)(1)(B).

2 S. Rep. No. 101-286, at 5-6 (1990), reprinted in 1990 U.S.C.C.A.N. 4100, 4103-04.

3 Department of Justice, Two Pinterest Directors Resign from Nextdoor Board of Directors in Response to Justice Department’s Ongoing Enforcement Efforts Against Interlocking Directorates (Aug. 16, 2023); Department of Justice, Justice Department’s Ongoing Section 8 Enforcement Prevents More Potentially Illegal Interlocking Directorates (Mar. 9, 2023); Department of Justice, Directors Resign from the Boards of Five Companies in Response to Justice Department Concerns about Potentially Illegal Interlocking Directorates (Oct. 19, 2022).

© Copyright 2024 Cadwalader, Wickersham & Taft LLP
For more on Merger Control Filings, visit the NLR Antitrust & Trade Regulation section.

New Diligence Opportunity for Financial Institutions

On Jan. 1, 2024, the Corporate Transparency Act (“CTA”) took effect. As a result, all business entities, unless expressly exempt by the CTA, must file Reports of Beneficial Ownership Information (“BOI”) with the Financial Crimes Enforcement Network (“FinCEN”), a unit of the U.S. Treasury. Under the CTA, “financial institutions,” i.e., banks and other entities that provide financings and are subject to the “Know Your Customer” and “Customer Due Diligence” regulations of FinCEN pursuant to the Bank Secrecy Act, the USA Patriot Act, and the Anti-Money Laundering Act of 2020, may access the BOI on reports filed with FinCEN.

To gain access to the BOI, the financial institution MUST:

  1. Obtain the written consent of the customer, i.e., the borrower, guarantor, or other loan party, in connection with the diligence process required before entering a business relationship with the customer, or as part of the continuing diligence required in an existing relationship. Accordingly, forms used by the financial institution to open or to continue an existing business relationship must include a clear and conspicuous provision in which the customer gives consent. This will probably require a complete review and revision of those forms;
  2. Determine that obtaining access to the BOI is reasonably necessary for the financial institution to meet its diligence obligations. That determination should be spelled out in the written request to FinCEN for access; and
  3. Acknowledge the scope of confidentiality obligations with respect to the BOI obtained, including the limited use permitted of the information, as well as safeguarding that accessed BOI from misuse.

Financial institutions should be prepared to request access to BOI as a matter of course. In any case where a customer engages in violative activity, and the BOI would have alerted the financial institution to possible risks, that institution could be exposed to sanctions by its principal prudential regulator and/or by other law enforcement agencies.

©2024 Norris McLaughlin P.A., All Rights Reserved
For more news on Financial Institutions Gaining Access to BOIs, visit the NLR Financial Institutions & Banking section.

Corporate Transparency Act Requires Disclosure of Information Regarding Beneficial Owners to FinCEN

The new year brings the most expansive disclosure requirements for U.S. business entities since the Depression. Starting January 1, 2024, U.S. companies and foreign companies operating in the United States will be required to report their beneficial owners and principal officers to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) pursuant to the Corporate Transparency Act (CTA) adopted as part of the 2021 National Defense Authorization Act, unless subject to specific exemptions.

Who Is Required to Report?
The CTA’s filing requirements (31 CFR 1010.380(c)(1)) apply to both domestic reporting companies and foreign reporting companies.

  • Domestic reporting companies are corporations, limited liability companies and any other entity registered to do business in any state or tribal jurisdiction by the filing of a document with the secretary of state or similar official.
  • Foreign reporting companies are business entities formed under the law of a foreign country that are registered to do business in any state or tribal jurisdiction by the filing of a document with the secretary of state or similar official

The CTA provides 23 categories of exemption. The following types of entities are not required to file reports with FinCEN:

  • Large Operating Companies
    This exemption applies to entities that (1) have 20 people or more full time employees in the United States, (2) have gross revenue (or sales) in excess of $5 million on their prior year’s tax return and (3) have a physical office in the United States.
  • Securities Reporting Issuers
  • Governmental Authorities
  • Banks
  • Credit Unions
  • Depository Institution Holding Companies
  • Money Services Businesses
  • Brokers and Dealers in Securities
  • Securities Exchanges and Clearing Agencies
  • Other Exchange Act Registered Entities
  • Investment Companies and Investment Advisers
  • Venture Capital Fund Advisers
  • Insurance Companies
  • State-Licensed Insurance Producers
  • Commodity Exchange Act Registered Entities
  • Accounting Firms
  • Public Utilities
  • Financial Market Utilities
  • Pooled Investment Vehicles
  • Tax-Exempt Entities
  • Entities Assisting a Tax-Exempt Entity
  • Subsidiaries of Certain Exempt Entities
  • Inactive Entities

It is worth noting that the definition of reporting companies is not limited to corporations and limited liability companies. Limited partnerships, professional service entities and other entities may qualify as reporting companies and, if so, are required to comply with the CTA’s reporting requirements.

How Does a Company Comply?
FinCEN requires affected companies to file beneficial ownership information reports (BOI Reports) using an electronic filing system. See the BOI E-Filing System.

What Information Should Be Reported?
Reporting companies must identify beneficial owners in their BOI Reports.

Beneficial owners are defined as individuals who directly or indirectly (1) exercise substantial control over a reporting company or (2) own or control at least 25 percent of ownership interests of a reporting company. Ownership interests covered by the CTA may include profits interests, convertible instruments, options and contractual arrangements as well as equity securities. In addition, owners who hold their ownership interests jointly or through a trust, agent or other intermediary are also required to be identified – although minors are generally exempted from reporting obligations.

Senior officers (typically, the president, CEO, CFO, COO and officers who perform similar functions); individuals with the ability to appoint senior officers or a majority of the board of directors or a similar body; and anyone else who directs, determines or has substantial input to other important decisions of a reporting company also need to be identified in BOI Reports as individuals exercising substantial control over reporting companies.

Reporting companies created on or after January 1, 2024, also must identify “company applicants” in their BOI Reports. Company applicants are the individuals who filed the documents creating the reporting company and individuals primarily responsible for directing or controlling the filing of documents creating a reporting company.

BOI Reports must contain the following information regarding the reporting company:

  • Legal name
  • Any trade name or d/b/a name
  • Address of the company’s principal place of business in the United States
  • Jurisdiction of formation
  • Taxpayer Identification Number.

BOI Reports must contain the following information regarding each beneficial owner and company applicant:

  • Full legal name
  • Date of birth
  • Current address
  • Copy of a passport, driver’s license or other identification document.

Every person who files a BOI Report must certify the information contained is true, correct and complete.

Information contained in BOI Reports will not be available to the public. However, FinCEN is authorized to disclose such information to:

  • U.S. federal agencies engaged in national security, intelligence or law enforcement activity
  • With court approval, to certain other state or local law enforcement agencies
  • Non-U.S. law enforcement agencies at the request of a U.S. federal law enforcement agency, prosecutor or judge
  • With the consent of the reporting company, financial institutions and their regulators
  • Federal regulators in assessing financial institutions compliance with customer due diligence requirements
  • The U.S. Department of the Treasury for purposes including tax administration.

Is There a Fee?
No fee is required in connection with filing of BOI Reports.

When Do Companies Need to File?
U.S. and foreign reporting companies that were formed or registered to do business in the United States prior to January 1, 2024, must file their initial BOI Reports no later than January 1, 2025. U.S. and foreign reporting companies formed on or after January 1, 2024, must file their initial BOI Reports within 90 days of receipt of notice of formation.

Reporting companies are required to file updated reports with FinCEN within 30 days of occurrence of a change in any of the information contained in their BOI Reports.

What If There Are Changes or Inaccuracies in the Reported Information?
Inaccuracies in BOI Reports must be corrected within 30 days of the date a reporting company becomes aware of or had reason to know of such inaccuracy. FinCEN has indicated that there will be no penalties for filing inaccurate BOI Reports if such reports are corrected within 90 days of their filing.

What If a Company Fails to File?
The willful failure to report the information required by the CTA or filing fraudulent information under the CTA may result in civil or criminal penalties, including penalties of up to $500 per day as long as a violation continues, imprisonment for up to two years and a fine of up to $10,000. Senior officers of an entity that fails to file a required report may be held accountable for such failure.

If you have questions regarding the provisions of the CTA or its applicability to your company, you may go to the FinCEN website.

© 2024 Wilson Elser
For more on the Corporate Transparency Act, visit the NLR Corporate & Business Organizations section.