This article initially appeared on https://fraudinsights.fnf.com/vol18iss05/article1.htm
It is no surprise, efforts to peel back the layers of entities to identify the ultimate owners are critical in the effort to intercept and stop money laundering and illicit activity. FinCEN, through a Geographic Targeting Order (GTO), looked to create a database of beneficial owners purchasing real property, designating specific areas across the country for specific property types and purchase price minimums.
The order, however, was only temporarily instituted. First issued in 2016, GTOs have been renewed every six months, the maximum time limit FinCEN could impose. In January 2021, Congress enacted the Corporate Transparency Act (CTA) looking to create a broader and more permanent reporting requirement.
Under the CTA, FinCEN is creating a database to track the Beneficial Ownership Information (BOI) of specific types of entities, not just those involving real property sales. The burden of reporting is placed on certain entity types and sizes — with potential civil and criminal penalties for failure to report or false reporting.
The idea behind the act is to increase transparency of companies which may look to hide or obscure their ultimate individual owners through the use of shell companies, thus targeting and exposing money laundering operations and illicit money.
The BOI reporting requirement goes into effect on January 1, 2024. Not all companies, however, will be required to report. There are numerous potential exemptions which may exclude different types of entities.
Potential exemptions may include insurance companies, state-licensed insurance producers, general partnerships, banks, companies with 20 or more employees and $5 million in annual revenue, and companies which are not actively engaged in business. Most, if not all, entities currently exempt from GTO will continue to be exempt from the new reporting requirement.
While the exemptions for specific types of business and the beneficial ownership information are similar to the information collected by the GTO, it is unclear if this will change or modify current requirements.
The CTA only focuses on the beneficial owners, it does not provide law enforcement with specific transaction details as with the Real Estate GTO. Moreover, it has been proposed to permanently enact some form of the Real Estate GTO reporting (instead of the typical six-month renewal period) and create a permanent, nationwide reporting process for certain real estate practices.
FinCEN renewed the Real Estate GTO, extending the required reporting on Covered Transactions until it is up for potential renewal on October 21, 2023. The new order contains expanded reporting. It does not look like the CTA will be replacing the GTO any time soon.
Article provided by contributing author:
Scott Cummins, Advisory Director
Fidelity National Title Group
National Escrow Administration