The nation’s financial crimes regulator has issued final rules boosting U.S. efforts to prevent money laundering.
The U.S. Treasury’s Financial Crimes Enforcement Network, known as FinCEN, set new regulations and a deadline for corporations and limited liability companies to report their true owners. The reporting rules, which take effect Jan. 1, 2024, were mandated under the Corporate Transparency Act enacted last year. They come as the U.S. has stepped up efforts to identify Russian oligarchs and their U.S. assets after Russia’s invasion of Ukraine in February.
The rules also greatly expand FinCEN’s earlier efforts to identify people who have tried to launder money through the purchase of high-value residential properties in major markets across the country. The new regulations, which make it harder for buyers to hide the identity of commercial real estate purchasers behind entities such as LLCs, are in addition to those previous efforts and do not supplant them, a FinCEN spokesperson told CoStar.
“For too long, it has been far too easy for criminals, Russian oligarchs, and other bad actors to fund their illicit activity by hiding and moving money through anonymous shell companies and other corporate structures right here in the United States,” acting FinCEN Director Himamauli Das said in a statement. “This final rule is a significant step forward in our efforts to support national security, intelligence and law enforcement agencies in their work to curb illicit activities.”
Not everyone is happy about the new regulations. After FinCEN's proposed rules were released in December 2021 and the agency put out a call for comments, opposition came from organizations representing small businesses.
The proposed rules were too broad or unclear as to who is considered a substantial owner and who is required to report, some business owners said. In addition, opposition was voiced over the added costs and time of meeting the reporting requirements.
The U.S. Chamber of Commerce estimated that 30 million American businesses face new reporting “burdens.” The chamber said the rule disproportionately affects small businesses.
While FinCEN tweaked some of the wording and exemptions to who reports what, such tweaks did not do enough to protect small businesses, some organizations and lawmakers have said.
Registration Requirements
When the new rules take effect, most corporations, LLCs and other entities created in or registered to do business in the United States will be required to report information about their beneficial owners — the persons who ultimately own or control the company — to FinCEN.
“The release of this first final rule is a historic moment in the decades-long fight to rid the U.S. of dirty money,” Ian Gary, executive director of the Financial Accountability and Corporate Transparency Coalition, said in a statement. “Anonymous shell companies help kleptocrats and criminals around the world park assets and commit crimes in our country. The U.S. has fallen behind many jurisdictions in requiring the true owners of corporate and other entities to be disclosed.”
The action is the culmination of years of efforts by Congress, the Treasury, national security agencies, law enforcement and other stakeholders to bolster the United States’ corporate transparency framework, according to Treasury Secretary Janet Yellen.
“It will help level the playing field for honest businesses that play by the rules but are at a disadvantage when competing against bad actors who use shell companies to evade taxes, hide their illicit wealth, and defraud customers and employees,” Yellen said in a statement.
Last April, FinCEN renewed and expanded its geographic targeting orders that require U.S. title insurance companies to identify those behind shell companies used in all-cash purchases of residential real estate.
The geographic targeting orders cover certain counties in a handful of major U.S. metropolitan areas, including Boston, Chicago, Dallas, Las Vegas, Los Angeles, Miami, New York City, San Francisco, Seattle and the District of Columbia and its surrounding markets.
FinCEN has previously reported that the use of the measures provided valuable data on the purchase of residential real estate by persons implicated, or allegedly involved, in various illicit enterprises, including foreign corruption, organized crime, fraud, narcotics trafficking and other violations.
The geographic targeting orders come up again for renewal late next month.