Tag: FinCEN

Real Estate Coalition Weighs In About Proposed Beneficial Ownership Reporting Requirements

Posted on by Trey Jackson

 

FinCEN logo and graphic image

The Real Estate Roundtable and three other national real estate organizations on May 5 submitted detailed comments to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) on the development of a new federal registry that will contain beneficial ownership information. 

Corporate Transparency Act 

  • The Roundtable, the National MultiFamily Housing Council (NMHC), National Apartment Association (NAA) and National Association of Home Builders (NAHB) submitted the comments in response to FinCEN’s effort to gather public input on the reporting, maintenance and disclosure of beneficial ownership information. 
  • FinCEN solicited comments on a wide range of questions related to its implementation of the Corporate Transparency Act (CTA) – enacted on January 1, 2021 – that effectively bans the registration of anonymously owned shell companies in the United States. (JD Supra, April 26 and Lexology, April 28) 
  • The CTA amended the Bank Secrecy Act to require corporations, limited liability companies, and similar entities to report certain information about their beneficial owners (the individual natural persons who ultimately own or control the companies). 

  • FinCEN is required to develop a confidential, secure, and non-public database to maintain the reported beneficial ownership information. This new reporting requirement aims to enhance the national security of the United States by making it more difficult for malign actors to exploit opaque legal structures to launder money, finance terrorism, proliferate weapons of mass destruction, traffic humans and drugs, and commit serious tax fraud and other crimes that harm the American people. 

Real Estate Industry Concerns 

Logos for NMHC-NAA-NAHB-RER

  • The real estate coalition’s extensive comments emphasize, “The scope of the CTA is far reaching and will impact many commercial and residential real estate businesses who are frequent users of the LLC structure for conducting business. If not implemented with a clear set of rules and regulations, the CTA could result in an outcome of confusion, missteps, and ultimately fines on law-abiding businesses.”
  • The coalition’s comments detail “concerns and recommendations for establishing regulations to implement reporting requirements – as well as provisions regarding FinCEN’s maintenance and disclosure of reported information effectively and fairly.”
  • The coalition document addresses several specific implementation issues, including how small companies targeted by the CTA will face compliance burdens. The time-consuming and challenging process of gathering required information on all beneficial owners of a reporting company that may have been created years ago is also addressed. 

Congressional Intent 

  • Reps. Patrick McHenry (R-NC), ranking member of the House Financial Services Committee, and Blaine Luetkemeyer (R-MO), ranking member of the Consumer Protection and Financial Institutions Subcommittee, sent a letter on April 7 to Treasury Secretary Janet Yellen on the development of the new beneficial ownership reporting regime.
  • The McHenry-Luetkemeyer letter urged Secretary Yellen to adhere to the CTA’s congressional intent by ensuring “the new reporting paradigm is focused on fighting bad actors such as human traffickers, money launderers, and State actors such as China.” The letter also emphasized that FinCEN implement the statute as intended, with a particular focus on minimizing burdens on small businesses while retaining confidentiality, unless disclosure is authorized. 

FinCEN is mandated to issue regulations on the new registry for beneficial ownership information by January 1, 2022 – and specify a subsequent effective date. 

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Industry and Business Coalitions Raise Concerns About Unintended Negative Consequences of Beneficial Ownership Legislation

Posted on by Trey Jackson

As Congress strives to address the challenges of controlling the use of shell companies engaged in money laundering, tax evasion and terrorism financing, a number of legislative proposals are being considered that could impair capital formation and threaten important privacy protections for real estate.  In two recent comment letters (Nov. 6 industry coalition letter and a Nov. 13 broad business coalition letter), The Roundtable and other organizations detail their concerns about the measures. 

  • As stated in the Nov. 6 industry letter to the Senate Banking Committee, “While well-intentioned, we believe the proposals currently under consideration that are designed to increase the transparency of the ownership structure of limited liability companies (LLCs) and real estate transactions would have negative, unintended consequences on the broader real estate market.  Several of these bills would place a significant compliance burden on owners of small businesses classified as corporations and LLCs, subject these businesses to potentially harmful privacy breaches and expose them to excessive and punitive damages.”
  • The letter also states, “While we support efforts to eliminate terrorism financing and money laundering, we remain concerned about the cost of imposing additional beneficial ownership reporting requirements on real estate partnerships and the extent to which these provisions could impair capital formation, threaten important privacy protections and increase compliance burden.”
  • The four specific legislative measures under consideration in the House and Senate are:

* On Oct. 22, the House passed the Corporate Transparency Act of 2019 (H.R. 2513) – introduced by Reps. Carolyn Maloney (D-NY) and Peter King (R-NY) – that would shift FinCEN reporting requirements from banks to the business community, requiring every business with fewer than 20 employees to register their beneficial owners.

* Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings, Illicit Cash Act (S. 2563)

* True Incorporation Transparence for Law Enforcement, TITLE Act, (S. 1889)

* Corporate Transparency Act (S. 1978)  

  • The Financial Crimes Enforcement Network’s (FinCEN) Customer Due Diligence (CDD) rule became applicable on May 11, 2018. The CDD rule requires financial institutions to collect the beneficial ownership information of business customers when they open accounts.  The congressional proposals would attempt to shift the reporting requirements from large banks – those best equipped to handle reporting requirements – to millions of small businesses – those least equipped to handle reporting requirements.
  • A coalition, including The Roundtable, sent a letter June 10 to the committee’s leadership opposing the Maloney-King bill.  “This legislation would impose burdensome, duplicative reporting burdens on approximately 4.9 million small businesses in the United States and threatens the privacy of law abiding, legitimate small business owners,” the letter states.
  • In the Nov. 6 letter from six real estate organizations, concerns about several of the four bills address:

* Unreasonable Lookback Reporting

* Duplicative Reporting

* Unclear Guidance

* Access and Disclosure Raises Privacy Concern

* Notification and Process for Compliance Untested

* Severe and Punitive Penalties

  • In the Nov. 13 letter, the broader business coalition expresses strong opposition to Title IV of S. 2563 – the Senate’s Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (ILLICIT CASH) Act – introduced in June by Sens. Mark Warner (D-VA), Tom Cotton (R-AR), Doug Jones (D-AL) and Mike Rounds (R-SD).  (Homeland Preparedness News, June 12).
  • The Nov. 13 letter states, “Under this legislation, millions of small businesses would be required to register personally identifiable information with FinCEN, file updated reports within 90 days of any ownership changes, and file additional updated reports within a year of any ownership information changes, such as an expiration of a passport number or a change in address. Failure to comply with these reporting requirements could result in civil penalties of $500 per day up to $10,000, criminal penalties of up to 4 years in prison, or both.”

The Roundtable is working with policymakers to stake out a balanced position on the beneficial ownership issue that would inhibit illicit money laundering activity, yet not place unnecessary costs and legal burdens on the real estate industry.

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House Passes Beneficial Ownership Bill; Senate Version Faces Uncertain Future

Posted on by Trey Jackson

 

FINCEN logo

The U.S. House of Representatives on Oct. 22 passed the Corporate Transparency Act of 2019 (H.R. 2513), which would require corporations and limited liability companies (LLCs) to report their beneficial owners to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).  The bill – introduced by Reps. Carolyn Maloney (D-NY) and Peter King (R-NY) – would shift the FinCEN reporting requirements from banks to the business community, requiring every business with fewer than 20 employees to register their beneficial owners with FinCEN.

  • A coalition that includes The Real Estate Roundtable sent a letter June 10 to the committee’s leadership opposing the Maloney-King bill.  “This legislation would impose burdensome, duplicative reporting burdens on approximately 4.9 million small businesses in the United States and threatens the privacy of law abiding, legitimate small business owners,” the letter states.
  • The coalition emphasized that it supports the overall goal of preventing wrongdoers from exploiting United States corporations and LLCs for criminal gain.  Yet the coalition letter detailed significant problems with H.R. 2513. (Roundtable Weekly, June 15)
  • In the Senate, the Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (ILLICIT CASH) Act was introduced in June by Sens. Mark Warner (D-VA), Tom Cotton (R-AR), Doug Jones (D-AL) and Mike Rounds (R-SD).  (Homeland Preparedness News, June 12)
  • Additionally, a Senate bill addressing beneficial ownership is entitled the True Incorporation Transparency for Law Enforcement (TITLE) Act (S. 1889).  A coalition that includes The Real Estate Roundtable on Oct. 16 sent a letter to Senate Judiciary Committee leaders strongly opposing the bill.  The letter states, “This legislation would impose duplicative and problematic reporting burdens on millions of small businesses in the United States and would threaten the privacy of law-abiding small business owners.”  (Policy Comment Letter, Oct. 16)
  • The Senate versions have different provisions, have not yet been the focus of a committee hearing, and prospects for a floor vote are uncertain. (BGov, Oct. 22)
  • The White House budget office commented this week that the House measure “represents important progress” but said it must be improved as it moves through the legislative process.  Among the steps recommended by the Administration are “protecting small businesses from unduly burdensome disclosure requirements, and providing for adequate access controls with respect to the information gathered under this bill’s new disclosure regime.”
  • The statement concludes, “The Administration looks forward to continuing to engage in a bipartisan fashion with the House and Senate to address these important issues.”

The Roundtable plans to work with policymakers to stake out a balanced position on the beneficial ownership issue that would inhibit illicit money laundering activity, yet not place unnecessary costs and legal burdens on the real estate industry. 

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House Committee Passes Beneficial Ownership Bill; Senate Hearing on June 20

Posted on by Trey Jackson

The House Financial Services Committee this week passed the  Corporate Transparency Act of 2019  ( H.R. 2513), which would require corporations and limited liability companies (LLCs) to report their beneficial owners to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).  The bill  – introduced by Reps. Carolyn Maloney (D-NY) and Peter King (R-NY)  – would shift the FinCEN reporting requirements from banks to the business community, requiring every business with fewer than 20 employees to register their beneficial owners with FinCEN . ( Roundtable Weekly , May 24)

The  House Financial Services Committee this week passed the Corporate Transparency Act of 2019 ( H.R. 2513 ), which would require corporations and limited liability companies (LLCs) to report their beneficial owners to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

  • H.R. 2513 would also mandate that businesses update beneficial ownership information with any changes (home or business address, driver’s license change, change in ownership) within 60 days, and annually for the life of the business.  Failure to comply with these reporting requirements would be a federal crime with civil penalties of up to $10,000 and criminal penalties of up to three years in prison.  
  • A coalition that includes The Real Estate Roundtable sent a letter June 10 to the committee’s leadership opposing the Maloney-King bill.  “This legislation would impose burdensome, duplicative reporting burdens on approximately 4.9 million small businesses in the United States and threatens the privacy of law abiding, legitimate small business owners,” the letter states. 
  • The coalition emphasizes that it supports the overall goal of preventing wrongdoers from exploiting United States corporations and LLCs for criminal gain.  Yet the coalition letter details significant problems with H.R. 2513. 
  • One major challenge is that the legislation would shift reporting requirements from large banks-those best equipped to handle the reporting requirements-to millions of small businesses-those least equipped to handle the reporting requirements. 
  • The coalition also notes the bill presents privacy, data breach and cybersecurity risks for millions of small businesses in the United States. 
  • On May 9, the House Financial Services Committee unanimously approved legislation entitled the “Coordinating Oversight, Upgrading and Innovating Technology, and Examiner Reform Act” or the “COUNTER Act.”  The bill (H.R. 2514) would require financial institutions to determine the beneficial owners involved in certain commercial real estate transactions – similar to a FinCEN Geographic Targeting Order requirement affecting residential purchases. (CQ, May 9 and (Roundtable Weekly, May 24) 
  • The Roundtable also raised concerns in February about beneficial ownership reporting requirements and the potential burdens they place on the real estate industry. (Coalition letter – Feb. 6, 2018).   

The Roundtable will continue to work with policymakers to stake out a balanced position on the issue that would inhibit illicit money laundering activity but does not place unnecessary costs and legal burdens on the real estate industry. 

Senate Hearing on Beneficial Ownership Follows House Committee Action Affecting Corporate Entity Transactions

Posted on by Trey Jackson

A Senate Banking Committee hearing this week on “Combating Illicit Financing by Anonymous Shell Companies Through the Collection of Beneficial Ownership Information” followed recent approval of legislation by the House Financial Services Committee that would affect beneficial ownership requirements for commercial real estate transactions.

Senate Banking Chairman Mike Crapo (R-ID)  held a hearing this week on “Combating Illicit Financing by Anonymous Shell Companies Through the Collection of Beneficial Ownership Information.”

  • Senate Banking Chairman Mike Crapo (R-ID) said in his opening statement that the committee seeks solutions “… to deter money laundering and the financing of terrorism through the use of front companies, shell companies, shelf companies, opaque nominees, and other means to conceal and disguise the true beneficial owners of property and other assets.”
  • The Senate committee held a previous hearing on the subject last November.  Another hearing focusing on industry perspectives is expected in June.
  • Congressional consideration of the beneficial ownership issue comes after the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) amended the Bank Secrecy Act regulations in May 2018.  FinCEN added a Customer Due Diligence rule requiring financial institutions to collect the beneficial ownership information of legal entities with which they conduct commerce. (FinCEN news release, May 2018)
  • In the House of Representatives, the Financial Services Committee considered legislation (H.R. 2514) affecting beneficial ownership during a May 8 mark-up.  (Committee Memorandum, May 3)
  • The committee approved legislation introduced by Reps. Emanuel Cleaver (D-MO) and Steve Stivers (R-OH) – introduced the “Coordinating Oversight, Upgrading and Innovating Technology, and Examiner Reform Act” or the “COUNTER Act” by a vote of 55-0.   The bill would require financial institutions to determine the beneficial owners involved in certain commercial real estate transactions – similar to a FinCEN Geographic Targeting Order (GTO) requirement affecting certain residential purchases. (CQ, May 9) 

    Congressional consideration of the beneficial ownership issue comes after the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) amended the Bank Secrecy Act regulations in May 2018. 
  • FinCEN’s GTO issued in November 2018 requires U.S. title insurance companies to identify the natural persons behind shell companies used in all-cash purchases of residential real estate.  The purchase amount threshold, which previously varied by city, is now set at $300,000 for each covered metropolitan area.  The GTO also covers certain counties within the following major U.S. metropolitan areas: Boston; Chicago; Dallas-Fort Worth; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle. (Wall Street Journal – Nov. 15, 2018) 
  • Another House Financials Services Committee proposal introduced by Reps. Carolyn Maloney (D-NY) and Peter King (R-NY) was postponed during the May 8 mark-up, yet is expected to be considered in June.  Their Corporate Transparency Act of 2019 ( H.R. 2513) would shift FinCEN reporting requirements on beneficial ownership from banks to the business community.  (CQ, May 9 and May 21) 
  • The Maloney-King legislation would require every business with fewer than 20 employees to register their beneficial owners with FinCEN.  Businesses would also need to update that registration with any changes (home or business address, driver’s license change, change in ownership) within 60 days, and annually for the life of the business.  Failure to do so would result in federal criminal penalties.  However, the bill fails to address the required information and the process for compliance.

The Roundtable has raised concerns about beneficial ownership reporting requirements and the potential burdens they place on the real estate industry. (Coalition letter – Feb. 6, 2018).  The Roundtable will continue to work with policymakers to stake out a balanced position on the issue that would inhibit illicit money laundering activity but does not place unnecessary costs and legal burdens on the real estate industry.