Unveiling Corporate Ownership: The Impact of the Corporate Transparency Act

Anti-money laundering initiative effects on residential real estate market and investment advisors

In previous articles, we highlighted the provisions of the 2021 Corporate Transparency Act (CTA) and the Beneficial Ownership Reporting Rules.

The CTA is part of the National Defense Authorization Act. The CTA represents an anti-money laundering initiative by requiring entities with the potential to be considered anonymous shell companies to report information regarding beneficial ownership. Financial Crimes Enforcement Network (FinCEN) is developing a database to store all information received from reporting entities. FinCEN can only release the data for law enforcement, national security, or intelligence purposes.

Effects on the residential real estate market

Over the past several decades, increases in the reporting and safeguarding of the financed real estate market have made significant improvements and given the amount of information that banks gather during the approval process there is significant information about owners. However, the non-financed residential real estate market has been a haven for those seeking to anonymously hide or launder illicit proceeds. The CTA aims to curb such activities by promoting transparency and security. Financial institutions play a crucial role in implementing the CTA. On January 1, 2024, FinCEN began accepting beneficial ownership information reports, which will help law enforcement and national security officials. These regulations protect sensitive personally identifiable information reported to FinCEN and specify authorized recipients with access to collected beneficial ownership information.

Effects on the investment advisor sector

Another focus of the CTA is for investment advisors. While private investment advisors oversee tens of trillions of dollars in the U.S. economy, they are not subject to consistent anti-money laundering (AML)/combating the financing of terrorism (CFT) requirements. Without these requirements in place, investment advisors are susceptible to or have the capability to take part in illicit acts.

To address these risks, the FinCEN has recently proposed a significant regulatory initiative. In February 2024, FinCEN introduced a Notice of Proposed Rulemaking designed to enforce AML/CFT measures within certain segments of the investment adviser sector.

This proposed rule aims to enhance transparency within the U.S. financial system by mandating specific AML/CFT requirements for designated investment advisers under the Bank Secrecy Act. These requirements include:

• Implementation of risk-based AML/CFT programs,
• Reporting of suspicious activities to FinCEN, and
• Maintenance of comprehensive recordkeeping standards.

Through these measures, the proposed rule seeks to empower law enforcement agencies in identifying and disrupting illicit financial activities that may infiltrate the U.S. economy through investment channels.

As we mentioned on our blog in March of 2024, the CTA is currently being litigated for Constitutionality in a federal district court. The outcome of the litigation could have implications for the practical application of CTA and how it affects your business.

We will continue to monitor this and other regulations that may impact the Financial Services industry. Questions on how to meet the CTA reporting requirement for your business? Contact your Keiter Opportunity Advisor or Email | Call: 804.747.0000.