Lack of awareness in some firms
The varying degrees of readiness extend to employee knowledge of the beneficial ownership filing requirements. While some firms have dedicated committees to the planning and directing of new policies and procedures, a number of the attorneys we have spoken to have said they were not familiar with the new BOI reporting requirements.
Still, law firms should be prepared to answer questions that clients may have about CTA, including advising whether or not they may be exempt from the reporting requirement and how they will need to comply.
How (and what) to communicate to existing clients
Due to the significant penalties for noncompliance, law firms may decide to notify clients who may be subject to the BOI reporting requirements. (Law firms may also want to contact the ethics committee of their local bar to determine if they have any ethical duty to notify clients.)
As for the preferred method for notification, we see that firms are debating a number of options. Some firms are leaning towards written communication, such as email or a hardcopy letter. Others favor notifying clients by phone in order to better address any questions that may arise.
But first, law firms must decide what level of service to provide. Some firms say that they will be helping clients with the initial reporting duties and with ongoing compliance. Other firms, at least for the time being, will be limiting their services to notification of potential filing status and providing information on reporting requirements.
Managing the additional workload
Firms that choose to engage in reporting for clients are also faced with determining who within the organization will be responsible for gathering reporting information and submitting forms to FinCEN.
There is the matter of certifying the accuracy of the information that the law firm will be submitting on the client’s behalf. After FinCEN published the Notice of Proposed Rulemaking, the agency received comments regarding the level of due diligence needed to determine the accuracy of the reporting information. As noted in the preamble to FinCEN’s final rule establishing beneficial ownership information reporting requirements, “FinCEN does not expect that an inadvertent mistake by a reporting company acting in good faith after diligent inquiry would constitute a willfully false or fraudulent violation.” But if there is a change or correction to be made, the reporting company has to file an update within 30 days.
In addition, the sensitive nature of handling personal identifiable information (PII) adds another layer of complexity to the reporting work. John Pachkowski, Senior Legal Analyst, Wolters Kluwer Legal & Regulatory U.S., comments that “law firms will need to evaluate their data security measures, since they will face elevated risk when they assist their clients with submission of their BOI reports and begin to accumulate electronic images of the forms of identification required by the BOI reporting regulation.”
While some firms we have spoken to are looking into hiring additional staff to take on these responsibilities, other firms will most likely dedicate existing staff to CTA-related work for the first year.