Tracking DEI Reporting with Entity Management Software – How it Works

The Corporate Transparency Act (CTA) was enacted on January 1, 2024. The authors of the CTA decreed a mandate that requires all qualifying business entities to submit beneficial ownership information (BOI) reports to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).

Two months later, on March 1, 2024, a US District Judge in Alabama ruled on a case brought before the court by the National Small Business Association (NSBA), an organization representing over 65,000 small business entities across the United States. The judge ruled that the CTA is “unconstitutional” and that lawmakers overstepped their bounds.

What is the purpose of the Corporate Transparency Act?

The CTA is part of a broader government effort to crack down on white-collar crime. US federal agencies and financial institutions annually identify unlawful transferrences of capital through money laundering or corporate sponsorship of international terrorism — actions that, in the government’s opinion, undermine national security.

As a result, the CTA gives FinCEN greater authority and oversight of suspected culprits of these crimes. Qualifying business entities must provide detailed BOI reports to FinCEN, which will store those records in secure databases and use them to monitor suspicious financial activities.

What were the details of the Alabama case?

The NSBA challenged the legal authority of the CTA and took the government to court seeking a summary judgment. Federal District Judge Liles C. Burke in Alabama issued a 53-page opinion about the case, which a Forbes contributing writer dissects in detail.

At the heart of the lawsuit is the fact that legal entities in the United States register with individual states where they choose to operate. The incorporation of those entities is a matter for the states to decide, along with the ability to prosecute those businesses for suspected financial crimes.

The NSBA argued that the CTA gives the federal government’s national security and foreign affairs matters the right to interfere with how individual states regulate businesses. Additionally, they argued that limited liability corporations (LLCs) may engage in interstate commerce, but not all entities pursue these opportunities.

The CTA requires all entities — even those that never cross state jurisdictions — to abide by the federal government’s mandate. Judge Burke ruled these grounds warranted an unconstitutional ruling of the CTA, though the federal government launched an appeal to the Eleventh Circuit.

Who is a beneficial owner under the CTA?

Within the CTA is specific language that defines a beneficial owner. According to the CTA, a beneficial owner is anyone who — directly or indirectly — maintains a 25% ownership interest in a corporate entity. Additionally, a beneficial owner is anyone who — again, directly or indirectly — maintains substantial control over business operations through voting rights.

Shareholders who fit the profile of a beneficial owner must provide their personal information — name, address, and a government-issued identification number — to the entity management department. That data is then processed and submitted to FinCEN as a BOI report.

Are some entities exempt from BOI reporting requirements?

The CTA allows authorities to gather beneficial ownership information from thousands of legal entities. However, FinCEN has detailed 23 types of legal entities that are exempt from the BOI reporting requirements.

Most exemptions revolve around the financial sector in the form of banks, credit unions, venture capital firms, depository institutions, or money services businesses. Government authorities, public utilities, and securities exchanges are also exempt from reporting BOI data to FinCEN.

What does the Alabama case ruling mean for BOI reporting?

So, what does the NSBA case against the Treasury Department mean for the future of BOI reporting requirements? There are two key takeaways from the case.

Firstly, Judge Burke clearly stated in his ruling that the injunction against the CTA only applies to businesses enrolled in the NSBA before March 1, 2024. Businesses that are registered members of the NSBA have a temporary pause on compliance with the CTA while the case is under appeal at the Eleventh Circuit.

For most businesses, the ruling has no impact whatsoever. FinCEN requires BOI reports from entities registered on or after January 1, 2024, within 90 days of receiving their articles of incorporation. Any entities registered before January 1, 2024, have until January 1, 2025, to submit their BOI reports to FinCEN.

How to prepare your BOI reports for FinCEN

While many entities still have several months to submit their BOI reports to remain in compliance with the CTA, it’s best to start gathering that information now. It’s much more effective for your entity management team to have all the information they need well in advance of the deadline to avoid last-minute scrambles and gaps in required data.

Intuitive entity management software can assist your legal and compliance departments with these tasks. Platforms like MinuteBox include pre-built templates and guided widgets that help your teams build detailed reports. The technology saves valuable working time and makes the process of gathering, filing, and securing entity management data quick and painless.

Additionally, you can use the platform’s Corporate Transparency Register to comply with all obligations under the CTA. Here, you can build detailed shareholder ledgers and create a comprehensive list of all beneficial owners with significant controlling interest in the company.

Once the data is in the platform, you can easily create detailed minute book records of all beneficial owners. Since the information is stored in your platform, filing and submitting the BOI reports to FinCEN is a breeze.

Prepare your legal entity for the next step of beneficial ownership reporting. Join the MinuteBox revolution today, and stay ahead of the game while maintaining compliance.

Influencing change in law firms can be a challenging task, particularly when it comes to the adoption of new technology. In this blog post, we will explore the role of paraprofessionals and legal professionals in driving change and ensuring successful adoption of new technology. Key points include training, the “train the trainer” approach, and involving key stakeholders in the decision-making process.

• Training is key to successful adoption of new technology
• “Train the trainer” approach involves key people within the firm learning new technology and training others
• Involving key stakeholders, such as partners, in the decision-making process can ensure support for new technology

Influencing change in a law firm can be a challenging task, particularly when it comes to the adoption of new technology. However, the role of paraprofessionals and legal professionals in driving change and ensuring successful adoption of new technology is crucial.

One strategy for influencing change is training. As Karen Anderson, Corporate Services Manager at Blakes, Cassels & Graydon LLP, explains, “the process of getting there was democratic and it mainly involved paralegals from all of our offices because the firm had an understanding that these are the folks that are using this technology going forward.”

Watch the full interview, Influencing Change in Law Firms: The Role of Paraprofessionals and Legal Professionals

Another strategy is the “train the trainer” approach, where key people within the firm learn new technology and train others. Karen explains, “key people in our firm that are learning a lot of the stuff and then training other people within the group. And it really just keeps evolving, but the driver is the paralegal use it, and lawyers can enjoy read-only access to all of these records. As can the clients.”

It is also important to involve key stakeholders, such as partners in the decision-making process. As Karen Tuschak, former National Director at Dentons and now onwner at Spider Silk Solutions, explains, “One of the things that we did at Dentons was the paralegals were definitely the drivers of the new technology and what we wanted. But we did have a partner committee as well, just so there was support at that upper level.” By involving key stakeholders in the decision-making process, it ensures that they are aware of the benefits of new technology and can support its adoption.

Involving paraprofessionals in the process of change is also a great way of getting buy-in and support from the legal team, as they are the ones that will be using the technology on a daily basis. Furthermore, having them involved in the training and the decision making process, they can be the drivers of the new technology and they can provide insight and feedback to the vendor to improve the product and make it more useful for the legal team.

In conclusion, training, the “train the trainer” approach, and involving key stakeholders in the decision-making process are crucial for influencing change and ensuring successful adoption of new technology in law firms. By involving paraprofessionals in the process, legal teams can benefit from the adoption of new technology and can provide feedback to vendors to improve the product.

On the weekend of March 11, 2023, a sense of deja-vu settled over much of North America. It was an unsettling series of financial setbacks that dangerously paralleled the 2008 financial crisis. What was the trigger of these unnerving reminders from the ‘08 global financial disaster? It was the collapse and insolvency of Silicon Valley Bank.

The SVB collapse triggered a wave of panic as investors rushed to pull their assets out of risky portfolios. The biggest loser in this latest bank run was Signature Bank, a massive entity with deep ties to real estate and legal industries. Seized by US regulators mere hours following the collapse of SVB, the Signature Bank collapse marked the third-largest bank failure in US history.

US Treasury Secretary Janet Yellen announced on March 12, 2023, that all SVB and Signature Bank customers will be “made whole” in an attempt to calm the brewing storm in the financial sector. Her efforts appear to have done the job, as markets rallied on March 13, 2023, a sign that her reassurances injected much-needed positive energy across the country. The worst damage appears to be limited to the US, as Canadian officials assured residents that the SVB fallout on the northern side of the border would be very low.

How did Silicon Valley Bank collapse?

Mark T. Williams, a former examiner for the US Federal Reserve, describes the SVB collapse as “a colossal failure in asset-liability risk management.” Other venture capitalists laid the blame on decisions by the SVB CEO and CFO to liquidate assets that had lost significant value as a result of rising interest rates.

SVB Financial Group, the parent company of SVB, reported selling $21 billion of bonds on March 8, 2023. The bonds had lost significant value against rising interest rates, and the sale resulted in an after-tax loss for the company of $1.8 billion for the quarter.

This reckless decision followed an earlier maneuver by SVB Financial Group CEO Greg Becker to sell off personal SVB stock valued at $3.6 million. SVB Financial Group CFO Dan Beck also made questionable sales of shares prior to the outright collapse of the bank. Collectively, these actions triggered a wave of panic that forced the institution into insolvency.

SVB had no Chief Risk Officer since April 2022

According to the company’s own records, there has been no Chief Risk Officer overseeing risk management issues at SVB since April 2022. Those same records show that the number of meetings chaired by the company’s risk committee more than doubled in the past year.

As the company divested assets from its stock portfolio in a blatant effort to rebuild capital, SVB customers rushed to withdraw $42 billion of cash in less than 48 hours. All these actions: the losses from the sale of stocks, the client loans devalued by higher interest rates, a lack of diversified banking customers (SVB primarily tailored to Silicon Valley tech startup firms)—created a chain reaction that led to the collapse of the bank.

A Chief Risk Officer and a properly functioning risk committee might have relayed the risk management concerns of poor fiscal decisions to the company’s CEO and CFO. Presumably, those stark warnings would have prevented those decisions from being made, which might have avoided the outright bank collapse.

SVB collapse comes on the heels of the FTX collapse

The SVB collapse is another reminder of the pitfalls of overinvesting in nascent industries. The SVB collapse comes only months following the collapse and disgrace of FTX, a cryptocurrency firm that engaged in a series of alleged cases of fraud.

While the end results are identical, there is a key difference between the two cases. The SVB collapse appears to have been the result of poor risk management policies and extremely short-sighted decisions on disbursing assets and liabilities. The FTX case involves criminal charges that have led FTX founder and former CEO Sam Bankman-Fried into criminal indictments that risk significant jail time.

Use entity management software and don’t be like SVB

Since the lack of a Chief Risk Officer in the SVB executive hierarchy played a major role in the bank’s collapse, the case serves as a sharp reminder for other business entities. It’s important that you have proper managers, established organizational charts, and clear corporate compliance policies in place to avoid making these same mistakes.

Entity management software is one of the best resources to help implement corporate compliance policies. You can build a detailed org. chart within the platform, creating an organizational hierarchy and chain of command to manage all important business decisions.

If there are any decisions with potential legal consequences, your team can review the org. chart and use the platform to create diligent minute book records documenting how those issues are managed. Additionally, you can send any documents that require signatory approval – for items such as the sale of company stock – to the appropriate executive. You can include the transfer, signature, and filing of those documents in your minute book. This will help ensure your entity manages all decisions with appropriate, and logical strategies.