As we complete the first quarter of 2024, business entities in the United States (including those involved in the gaming industry) should be familiar with their obligations under the Corporate Transparency Act (CTA), which is part of the 2021 National Defense Authorization Act. The CTA requires entities organized by a filing under state or tribal law to disclose beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN) unless otherwise exempt under the regulations implementing the CTA. We have prepared a memo for clients that describes the reporting obligations and exemptions. There have been recent developments with respect to the CTA of interest to potential reporting entities as well as casinos.

The case of interest to potential reporting entities is National Small Business United, d/b/a the National Small Business Association, et al. v. Janet Yellen, in her official capacity as Secretary of the Treasury, et al., Case No. 5:2022-cv-01448, in the US District Court for the Northern District of Alabama. On March 1, that court declared the CTA unconstitutional over government arguments that the constitutional authority for the CTA is found in Congress’ foreign affairs powers, the commerce clause, and Congress’ taxing power.

The court found that the CTA is not authorized by Congress’ foreign affairs powers because those powers do not extend to purely internal affairs, especially in areas left to the states, such as the incorporation of an entity. The court also found the plain text of the CTA does not come under the commerce clause because the CTA does not regulate the channels and instrumentalities of commerce, let alone commercial or economic activity, but rather applies to reporting companies, which may or may not be engaged in interstate commerce. Finally, the court found that although there is a relationship between the CTA disclosure provisions and the taxing power of the government, providing access to the CTA’s database for tax administration purposes is not enough to establish a sufficiently close relationship to ensure taxable income is appropriately reported.

Interestingly, the court took the extra step of pointing out how Congress could have drafted the CTA to allow it to pass constitutional muster, such as by imposing the CTA’s reporting obligation only on entities as soon as they choose to engage in interstate commerce.

Although the court found the CTA unconstitutional because it could not be justified as an exercise of Congress’ enumerated powers, it enjoined application of the CTA only with respect to the National Small Business Association and its members. To date, there has been no action to extend the injunction to other entities subject to the CTA. Therefore, unless a business entity is a member of the National Small Business Association or otherwise exempt from reporting, it is obligated to report. Reporting entities organized on or after Jan. 1, 2024, through the remainder of 2024 have 90 days from the date of the organizational filing to file with FinCEN, while entities organized before Jan. 1, 2024, have until year-end 2024 to file their reports with FinCEN. Entities organized on or after Jan. 1, 2025, will have 30 days to file their BOI reports.

The matters of interest to casinos are the Beneficial Ownership Information Access and Safeguard Rules (the Rules), published Dec. 22, 2023, and the Small Entity Compliance Guide for Beneficial Ownership Information Access and Safeguard Rules concerning BOI access and safeguards. The Rules became effective Feb. 20 and restrict disclosure of information obtained from the FinCEN BOI database by any individual who has secured such information as a director, an officer, an employee, a contractor, or an agent of a financial institution, including a casino.

The Rules limit the disclosure of information by FinCEN to (i) federal agencies for use in furtherance of national security, intelligence, or law enforcement activity; (ii) state, local, and tribal law enforcement agencies for use in criminal or civil investigations; (iii) a federal agency on behalf of a foreign national security intelligence or law enforcement entity in furtherance of foreign national security, intelligence, or law enforcement activity; (iv) financial institutions and their regulatory agencies to facilitate compliance with customer due diligence requirements; and (v) officers or employees of the US Department of the Treasury.

The Rules also impose security and confidentiality requirements on financial institutions such as casinos. First, a financial institution such as a casino shall not make information obtained from FinCEN available to any persons physically located in, or store the information in, the People’s Republic of China, the Russian Federation, or any state sponsor of terrorism as determined by the US Department of State or that is otherwise subject to comprehensive financial and economic sanctions imposed by the US government.

Second, a financial institution such as a casino must develop and implement administrative, technical, and physical safeguards designed to protect the security, confidentiality, and integrity of such information. However, application of such information procedures established by a financial institution such as a casino to satisfy the requirements of Section 501 of the Gramm-Leach-Bliley Act and applicable regulations thereunder will meet this obligation.

Third, a financial institution such as a casino must obtain and document the consent of the reporting company to request BOI from FinCEN, which consent must be maintained for five years after it was last relied on.

Finally, a financial institution such as a casino must certify that it is requesting information to facilitate its compliance with its customer due diligence requirements under applicable law, has obtained the consent of the reporting company to request the information from FinCEN, and has fulfilled all other requirements.

Examples of permissible uses of BOI obtained from FinCEN include but are not limited to:

• Customer identification requirements
• Enhanced due diligence required under the Bank Secrecy Act
• Suspicious activity report filing
• Uses that facilitate compliance with the Office of Financial Assets Control
• Anti-money laundering-related requests, reviews, and investigations

Financial institutions do not have access to the BOI database at this time. FinCEN is taking a phased approach to providing BOI, and financial institutions will be part of the final group to be extended access. Until then, there should be no change in a financial institution’s procedures for the collection of BOI.