Corporate Transparency Act May Require Changes In Legal Ethics

Some real estate attorneys are questioning whether the Corporate Transparency Act will impose new ethical obligations on attorneys.

The Corporate Transparency Act (“CTA”) requires companies to disclose their beneficial ownership through a report filed with FinCEN, the Treasury Department’s Financial Crimes Enforcement Network. The rules of legal ethics, however, compel attorneys not to disclose their client’s confidential information. Some legal writers have questioned whether the conflict between these obligations create an ethical conflict for attorneys.

Congress adopted the CTA in late 2020, but FinCEN has not yet published implementing regulations. As a result, legal scholars cannot predict precisely how the CTA might change lawyers’ ethical duties. The law requires FinCEN to adopt regulations before the end of 2021.

Some legal writers have suggested that attorneys should take steps to prepare for the CTA. First, where appropriate, they should refrain from forming new entities until FinCEN issues its CTA regulations. Second, they should update their engagement letters to warn clients about this upcoming disclosure duty. Third, they should clarify that they will not be responsible for filing beneficial ownership reports unless the client requests that service. And finally, attorneys should consider requesting indemnification from their clients for inaccuracies in beneficial ownership information provided by the client.

FinCEN has made several statements to suggest that it will publish regulations to implement the CTA before the end of 2021. Transactional attorneys should monitor this site for new about the upcoming regulations. They should also plan for the possibility of other changes in their engagement letters and other procedures when the regulations are finalized.

Update:  FinCEN issued its Final Rule on beneficial ownership reports under the Corporate Transparency Act on September 29, 2022.  As a result some of the guidance in this post is superseded the Final Rule.