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Subject to Inquiry

THE LATEST ON GOVERNMENT INQUIRIES AND ENFORCEMENT ACTIONS

Government Investigations and White Collar Litigation Group
Enforcement and Prosecution Policy and Trends

BIS Continues Enforcement Policy Ramp-Up

On January 16, 2024, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued new guidance to incentivize voluntary self-disclosure (“VSD”) of possible violations of the Export Administration Regulations (“EAR”). This new guidance—which was announced in conjunction with a speech by BIS’s top enforcement official indicating the EAR enforcement is an increasingly important priority for BIS and the Department of Justice (“DOJ”)—continues a trend of BIS signaling increasingly aggressive enforcement of export control violations.

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Enforcement and Prosecution Policy and Trends, Sanctions, Trade Embargo, and Export Controls

Recent Sanctions Enforcement Actions Demonstrate Importance of  Incorporating All Available Data into Screening

For U.S. businesses, sanctions compliance has never been more challenging or more important.  The U.S. has responded to Russia’s invasion of Ukraine with a broad range of sanctions targeting the Russian government, its officials, oligarchs and Russia’s financial and energy industries, among others.  Indeed, since the invasion of Ukraine, the agency that administers sanctions, the Office of Foreign Assets Control (OFAC), has added over 2500 Russia-related targets to the Specially Designated Nationals and Blocked Persons (SDN) List.  These new sanctions mean that there are now more sophisticated and motivated sanctions evaders than ever before.  In turn, the U.S. has made clear its determination to pursue those who violate sanctions.  As a means of capturing its new level of intensity and commitment to sanctions enforcement, the leadership of the Department of Justice (DOJ) has described sanctions enforcement as “the new FCPA.”[1]  Moreover, all of the above was true before Hamas’ attack on Israel and the escalation of violence in the Middle East, which increases the importance of sanctions targeting Hamas, Hezbollah, Iran and other adversaries of the U.S. based in the Middle East.

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Anti-Bribery and Corruption

The Foreign Extortion Prevention Act: Another Tool to Fight Foreign Corruption

In recent years, the Biden Administration has been vocal that combatting foreign public corruption is a key pillar of its national security efforts.[1]  Consistent with those policy goals, on December 22, 2023, Congress passed the Foreign Extortion Prevention Act (FEPA), a long-awaited complement to the Foreign Corrupt Practices Act (FCPA).  Where the FCPA targets those who offer or pay bribes to foreign officials, the new FEPA targets those who solicit and receive the bribes—the foreign officials themselves.

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Compliance

New York LLC Transparency Act Beneficial Ownership Reporting Requirements to Take Effect

On December 23, 2023, New York Governor Kathy Hochul signed the New York LLC Transparency Act (“NYLTA”), which requires LLCs to disclose beneficial ownership information (“BOI”) to the New York Department of State.  Effective December 21, 2024, the NYLTA will impose separate BOI reporting requirements on New York LLCs, which are also subject to the reporting requirements under the federal Corporate Transparency Act (“CTA”).  McGuireWoods has published prior alerts on the CTA generally, the use of FinCEN identifiers to report BOI, FinCEN’s extension of the time to file from 30 to 90 days for entities created beginning January 1, 2024, and January 2024 updates regarding the CTA.

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Fraud, Deception and False Claims

1st Circuit Rejects Convicted Former Medical Device Executives’ Off-Label “Free Speech” Theory

A federal appeals court recently upheld misdemeanor convictions of two former Acclarent Inc. executives for commercially distributing an adulterated and misbranded medical device by misleading the U.S. Food and Drug Administration regarding the device’s intended use.

Read on for details about the decision, which rejected claims that their off-label promotion amounted to constitutionally protected commercial speech.

Anti-Money Laundering, Compliance

Corporate Transparency Act: Three Updates for January 2024

RELATED UPDATE: Deputy Attorney General Monaco Announces New DOJ Whistleblower Program (March 8, 2024)


As of January 1, 2024, the Corporate Transparency Act (“CTA”) has gone into effect. Companies that may be Reporting Companies of Beneficial Ownership Information (“BOI”) should be aware of three key aspects of the CTA.

  • One, entities formed on or after January 1, 2024 must file, within 90 days after formation or registration, their required BOI with the Financial Crimes Enforcement Network (“FinCEN”). McGuireWoods has published prior alerts on the CTA generally, the use of FinCEN identifiers to report BOI, and FinCEN’s extension of the time to file from 30 to 90 days. As a reminder, Reporting Companies in existence prior to January 1, 2024 have until January 1, 2025 to make their required reports. FinCEN has published guidance materials to facilitate understanding the BOI reporting requirements, which include a Small Business Compliance Guide, FAQs, and other resource materials. These are available on FinCEN’s website. FinCEN plans to continue developing guidance and other materials to ensure timely, accurate, and complete reporting. FinCEN also established a dedicated BOI contact center to respond to questions regarding reporting requirements, as well as to provide technical assistance to users encountering issues with its Beneficial Ownership Secure System (“BOSS”).
  • Two, FinCEN met its January 1, 2024 deadline to have the BOSS up and running to receive, store, and maintain BOI.
  • Three, FinCEN adopted a new regulation that addresses how FinCEN will regulate access to the BOI reported to FinCEN. While the new access rule takes effect on February 20, 2024, access will be phased in over time to ensure that the proper controls are in place to, among other things, ensure the security of the reported information.

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Anti-Money Laundering, Compliance

FinCEN Extends Time to File Beneficial Ownership Information for Entities Created After January 1, 2024

The Corporate Transparency Act (“CTA”) was enacted in 2021 as part of the Anti-Money Laundering Act of 2020. The CTA requires certain business entities (“Reporting Companies”) to report beneficial ownership information (“BOI”), and, for entities created or registered on or after January 1, 2024, information with respect to any individual who directly files the document creating the Reporting Company (“Company Applicant”), to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).

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Anti-Money Laundering, Compliance

FinCEN Specifies When and How Reporting Companies May Use FinCEN Identifiers

The Corporate Transparency Act (“CTA”) was enacted in 2021 as part of the Anti-Money Laundering Act of 2020, requiring certain business entities (“Reporting Companies”) to report beneficial ownership information (“BOI”), and, for entities created or registered on or after January 1, 2024, information with respect to any individual who directly files the document creating the Reporting Company (“Company Applicant”), to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).  McGuireWoods described the CTA’s requirements in a previous post.  

On November 7, 2023, FinCEN announced a final rule amending its beneficial ownership information (“BOI”) reporting requirements addressing the circumstances under which Reporting Companies may use an entity’s FinCEN Identifier instead of reporting the BOI of individuals owners of that entity.

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Fraud, Deception and False Claims

Lessons for Providers and Practice Entities: Ophthalmology Groups Pay Millions to Settle Co-Management, Optometrist Relationship Allegations

Two ophthalmology practice groups recently reached settlements with the U.S. government totaling nearly $20 million to resolve allegations that their third-party cataract arrangements violated several healthcare laws.

Read on to discover how the settlements offer guidance to vision providers with respect to the government’s focus on ophthalmology-optometry relationships, and whether the settlements’ lessons have broader applicability to providers and practice entities.

Anti-Money Laundering, Compliance

Beneficial Ownership Reporting Requirements under the Corporate Transparency Act

Corporate Transparency Act Beneficial Ownership Reporting Requirements to Take Effect

In 2021, the Corporate Transparency Act (“CTA”) was enacted as part of the Anti-Money Laundering Act of 2020, requiring certain business entities (“Reporting Companies”) to report beneficial ownership information (“BOI”) to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).  FinCEN issued the final rule implementing the CTA’s reporting provisions on September 29, 2022.  Effective January 1, 2024, these new reporting provisions put the onus of reporting beneficial ownership information on the Reporting Companies themselves. 

The CTA’s Basic Requirements

The CTA requires certain domestic and foreign corporations, LLCs, or other entities to:

  • Report individuals’ BOI to FinCEN, including:
    • Full legal name;
    • Date of birth;
    • Complete current address;
    • Unique identifying number from a U.S. passport, state ID, driver’s license, or non-expired foreign-issued passport; and
    • An image of the identification document from which the unique identifier was obtained.
  • Disclose information about who created the entity or registered it to do business in the U.S.
  • Report any change to previously reported information within the specified time period.

Beneficial Owners are those that own, directly or indirectly, 25% of the Reporting Company, or individuals who exercise substantial control.  Substantial control means:

  • Serving as a senior officer;
  • Having authority to appoint or remove a senior officer or the board majority; or
  • Directing, determining or having substantial influence over important decisions.

FinCEN will be proposing rules to reduce duplicative reporting obligations, which exist because certain financial institutions currently must obtain similar BOI information for legal entity customers at account opening.

Exempt Entities

The CTA excludes nearly two dozen types of entities—most already registered or regulated—from reporting.  These include, among others:

  • Large operating companies (20+ full time employees and $5 million in gross receipts/sales);
  • Public companies;
  • Venture capital fund advisors;
  • Pooled investment vehicles;
  • Subsidiaries of certain exempt entities (must be wholly owned subsidiaries);
  • Insurance companies and insurance producers;
  • Certain other highly regulated entities, such as:
    • Banks;
    • Credit unions;
    • Bank holding companies;
    • Securities brokers or dealers;
    • SEC-registered investment companies or investment advisers; and
    • Exchange or clearing agencies; and
  • Inactive companies.

In the Adopting Release, FinCEN stated that it is “not implementing additional exemptions beyond the twenty-three specific statutory ones at this time, including to cover non-depository institution holding companies” but that it “will continue to consider suggestions for additional exemptions.”

Reporting Requirements

Each person filing a report of a Reporting Company’s BOI or application containing information about an individual applying for a FinCEN identifier under the CTA must certify that the report or application is true, correct, and complete.  Entities created or registered before January 1, 2024 do not need to report information with respect to any individual who directly files the document creating the Reporting Company (“Company Applicant”), but they still need to report BOI.

On or after January 1, 2024, individuals who are Beneficial Owners or Company Applicants can, upon request via an electronic web form, receive a unique identifying number from FinCEN (a “FinCEN Identifier”).  Reporting companies may report the FinCEN identifier of the individual in place of that individual’s otherwise required personal information on a BOI report (so that personal information need not be turned over to the reporting individual). 

When to File

The CTA imposes different filing deadlines depending on whether a Reporting Company is in existence, or, in the case of a foreign company, registered to do business in a state or tribal jurisdiction as of January 1, 2024.

Initial Report

For Reporting Companies created prior to January 1, 2024, the Reporting Company has until January 1, 2025, to file its initial BOI report.  For Reporting Companies created on or after January 1, 2024, the Reporting Company must file its initial report within 30 days of the earlier of the date on which it receives actual notice of creation, or a secretary of state first provides public notice of the creation of the entity.  FinCEN has proposed a rule to extend the 30-day deadline to 90 days for companies created or registered on or after January 1, 2024. 

Updated and Corrected Reports

Reporting Companies have 30 days to update their previously filed BOI reports if any of the required information regarding the Reporting Company or its beneficial owners change. 

Access to Reported Information

FinCEN will store the BOI reported under the CTA in a secure, nonpublic database referred to as the Beneficial Ownership Secure System (“BOSS”).  FinCEN may disclose the reported BOI only if requested by:

  • U.S. federal agencies engaged in national security, intelligence, or law enforcement activities, for use in furtherance of those activities.
  • A state, local or tribal law enforcement agency, if a court has authorized the agency to seek the information in connection with a civil or criminal investigation.
  • A federal agency on behalf of a non-U.S. law enforcement agency or foreign prosecutor or judge.
  • A financial institution subject to customer due diligence requirements, with the consent of the Reporting Company, to facilitate the financial institution’s compliance with customer due diligence requirements under applicable law.

Penalties for Violation and Safe Harbor

The CTA provides for civil and criminal penalties for violations, including a criminal fine of up to $10,000, and imprisonment for up to two years, or both, and/or civil penalties of up to $500 per day, for any person who willfully provides or attempts to provide false or fraudulent BOI or fails to report complete or updated BOI to FinCEN.  Penalties may also apply to Reporting Companies and individuals who cause a Reporting Company not to report or are senior officers of a Reporting Company at the time the company failed to accurately report or update BOI.

The CTA provides a safe harbor if the Reporting Company that has reason to believe that a submitted BOI report contains inaccurate information files a corrected report within 30 days after becoming aware or having reason to know of the inaccuracy. 

Next Steps for Reporting Companies

Entities with reporting obligations should carefully review these requirements before they go into effect on January 1, 2024.  Reporting Companies should consider developing compliance and communication policies and procedures with regard to beneficial ownership reporting, updating, and periodic monitoring. 

McGuireWoods has been tracking this rule and its implementation and can assist clients by:

  • Advising on whether an entity meets the definition of a Reporting Company.
  • Analyzing whether any exemptions apply.
  • Analyzing who may meet the definition of beneficial owner and substantial control person.
  • Assisting clients in establishing a CTA compliance program to ensure regular review, documentation of decisions, and reporting of material changes in BOI.

For questions about these new rules, the CTA, or customer due diligence and beneficial ownership rules more generally, contact the authors of this article or another member of the McGuireWoods Government Investigations and White Collar team, Financial Services Litigation team, Tax & Employment Benefits team, or the Corporate & Private Equity team.

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