FINCEN proposed rule making -cash purchases of real estate property -crack down on money laundering

Giving the AML extra teeth & putting shell cos on notice. All while trying to prevent illicit money from infiltrating our Country’s Financial Institutions. This is important so pay attention or not

I swear I had every intention of not publishing today. Given my work day started before 5AM and I didn’t arrive back to my house until 10:45PM -talk about a long day. But as luck would have it on my 3+ hour ride back to DC, I received a phone call from a longtime friend. They asked me what my thoughts were on the December 6th and 7th announcements

So I had to pull over at a rest stop and fire up my laptop and I was like: wow. just. wow and talk about long over due. So naturally after a nearly twenty hour work day I felt like I could spend a bit of time explaining why this is really a big deal.

If you recall in late December 2020 and in January 2021 I did a very long thread walking through the NDAA for Fiscal Year 2021. (See archive of that super spicy December 2020 twitter thread) I’d like to draw your attention to the latter part of the year old thread…

December 4, 2020 Archived Twitter Thread

• Congress enacted the FY2021 National Defense Authorization Act (NDAA), which included significant reforms to the U.S. anti-money laundering (AML) regime.

• NDAA includes the Anti-Money Laundering Act of 2020 (AML Act) and, within the AML Act, the Corporate Transparency Act (CTA).

Earlier today the Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking (NPRM) to implement the beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA).

… curtail the ability of illicit actors to hide wealth behind anonymous shell companies… that pay cash for high end real estate property…

The proposed rule is focused on protecting the U.S. financial system from illicit use and impede malign actors from abusing legal entities, like shell companies, to conceal proceeds of corrupt and criminal acts. These type of malign activity undermines our Country’s:

• national security,

• economic fairness, and

• the integrity of the U.S. financial system.

The proposed rule further addresses the following

• who must report beneficial ownership information, when they must report, and what information they must provide.

• Collecting this information and providing access to law enforcement, financial institutions, and

• …other authorized users will diminish the ability of malign actors to hide, move, and enjoy the proceeds of illicit activities.

“FinCEN is taking aggressive aim at those who would exploit anonymous shell corporations, front companies, and other loopholes to launder the proceeds of crimes, such as corruption, drug and arms trafficking, or terrorist financing,” said Acting FinCEN Director Himamauli Das.

Hey remember that time when some of us were like ignore the Blue QANON-screaming goats -larpers gotta larp and grifters gotta grift. When someone presents a solid file of facts, it never makes any sense to me, why so many actually ignores what really matters. Given when it is substantiated by actual facts in various documents. Specifically the G7 Summit?

Biden White House National Security Study Memorandum -Fight Against Corruption- ahead of G7 & NATO summits (next week) timing matters

Today’s FINCEN announcement is reflective of the Biden Administration’s commitment of curbing corruption and increasing transparency, the proposed rule will be further highlighted during the December 8-10, 2021 Summit for Democracy.

• Day Zero – December 8, 2021

• Day One – December 9, 2021

• Day Two – December 10, 2021

I’ve taken the liberty of embedding the link to the live stream of tomorrow’s summit kick off

The proposed rule reflects the various stated concerns in the newly released U.S. Government Strategy on Countering Corruption

• addresses the money laundering risks posed by anonymous shell companies as well as the need to protect the international financial system from abuse by corrupt and other illicit actors.

• consistent with the efforts of the Financial Action Task Force and G7 and G20 leaders to curtail the ability of illicit actors to hide wealth behind anonymous shell companies.

Today’s FINCEN announcement and proposed final rule making is a tag team of yesterday’s announcement -FinCEN Launches Regulatory Process for New Real Estate Sector Reporting Requirements to Curb Illicit Finance

The Key Elements of the Proposed Beneficial Ownership Information Reporting Regulation:

FINCEN Notice of Proposed Rulemaking is aimed at helping to stop malign actors from using legal entities (like shell and/or shelf companies which are completely different) to hide illicit funds behind anonymous shell companies or other opaque corporate structures.

The proposed rule describes who must file a BOI report, what information must be reported, and when a report is due. Specifically, the proposed rule would require reporting companies to file reports with FinCEN that identify two categories of individuals: (1) the beneficial owners of the entity; and (2) individuals who have filed an application with specified governmental or tribal authorities to form the entity or register it to do business.

Reporting Companies

• The proposed rule identifies two types of reporting companies: domestic and foreign. A domestic reporting company would include a corporation, limited liability company, or any other entity created by the filing of a document with a secretary of state or similar office under the law of a state or Indian tribe.

• A foreign reporting company would include a corporation, limited liability company, or other entity formed under the law of a foreign country and that is registered to do business in any state or tribal jurisdiction. Under the proposed rule and in keeping with the CTA, twenty-three types of entities would be exempt from the definition of “reporting company.”

• FinCEN expects that these definitions would include limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships, in addition to corporations and LLCs, because such entities appear typically to be created by a filing with a secretary of state or similar office.

• Other types of legal entities, including certain trusts, would appear to be excluded from the definitions to the extent that they are not created by the filing of a document with a secretary of state or similar office.

Because the proposed new rule would likely add significant burdens on both financial institutions, real estate companies… FinCEN recognizes that the creation of many trusts does not involve the filing of such a formation document. The December 7, 2021 Notice of Proposed Rulemaking seeks public comment on state and Indian Tribe law practices regarding trust formation to better understand and define the scope of the rule. Unlike the previous administration, the current Administration understands the APA and other requirements for any proposed new rule making. How refreshing it is to have an administration that respects our “Rule of Law” —APA baby APA

Impacts on Beneficial Owners

• Under the proposed rule, a beneficial owner would include any individual who

  • (1) exercises substantial control over a reporting company, or

  • (2) owns or controls at least 25 percent of the ownership interests of a reporting company.

  • The proposed regulation defines the terms “substantial control” and “ownership interest” and sets forth standards for determining whether an individual owns or controls 25 percent of the ownership interests of a reporting company. In keeping with the CTA, the proposed rule exempts five types of individuals from the definition of “beneficial owner.”

• In defining the contours of who has “substantial control,” the proposed rule sets forth a range of activities that could constitute “substantial control” of a company. This list has the inclusion of capturing anyone who is able to make significant decisions on behalf of the entity.

• FinCEN’s approach is designed to close loopholes that would allow corporate structuring that obscures owners or decision-makers. This is crucial to unmasking shell companies.

Company Applicants

• In the case of a domestic reporting company, the proposed rule defines a company applicant to be the individual who files the document that forms the entity. In the case of a foreign reporting company, a company applicant would be the individual who files the document that first registers the entity to do business in the United States.

• In both cases, the proposed regulation specifies that anyone who directs or controls the filing of the relevant document by another would also be a company applicant.

Beneficial Ownership Information Reports

• When filing BOI reports with FinCEN, the proposed rule would require a reporting company to identify itself and report four pieces of information about each of its beneficial owners and company applicants: name, birthdate, address, and a unique identifying number from an acceptable identification document (and the image of such document).

• If an individual provides his or her BOI to FinCEN, the individual can obtain a “FinCEN identifier,” which can then be provided to FinCEN in lieu of other required information about the individual.

• The proposed regulations also include a voluntary mechanism to allow reporting of the Taxpayer Identification Number (TIN) for a beneficial owner or company applicant.

And the 60 day public comment window NOW OPEN:

See the draft language that FINCEN sent to the Office of the Federal Register (OFR) for publication. There isn’t a publication date (but there will be soon and I’ll update as warranted) FINCEN is currently pending placement on public display at the OFR and publication in the Federal Register.

Federal E-rulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments. Include 1506-AB54 in the submission. Refer to Docket Number FINCEN–2021–0007.

…ANPRM, FinCEN seeks input on how it should implement such a system, consistent with the Bank Secrecy Act (BSA), to maximize benefits while minimizing burdens on reporting financial institutions and nonfinancial trades or businesses.

• seeks comment to assist FinCEN in preparing a potential proposed

  rule that would seek to impose nationwide recordkeeping and reporting requirements on certain persons participating in transactions involving non-financed purchases of real estate.

• See Comptroller of the Currency on Apr 12, 2021 - Request for Information and Comment: Extent to Which Model Risk Management Principles Support Compliance with Bank Secrecy Act/Anti-Money Laundering and Office of Foreign Assets Control Requirements

So in short FINCEN’s proposed new rule would not only close certain loopholes, but it would also require increased transparency and closer scrutiny of all cash purchases of (high end) real estate. I had heard rumors that this was the long term objective of the Biden Administration and our G7 Allies are very much on board with this new level of transparency.

At any rate my day starts at 4AM tomorrow so I guess I’m going to regret spending the time on this article. I needed to do something to unwind from an otherwise pretty stressful day. In general I do not like to be at loggerheads with lawmakers or their staff, but they also know I’d go to the mat for some of them. Not all of them, just some <snort>

But to be clear I’m not publishing tomorrow and if I did this right this article will publish before midnight … Filey

Ugg how very rude of me, I neglected to give you -your daily dose of Ocean therapy. Apologies 👇🏻

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