Law Curbing Anonymous LLCs Yet To Be Implemented Over 18 Months After Passage

A promising law targeting anonymous corporations formed to own real estate that can give cover to money laundering and other financial misdeeds is still a long way from being implemented despite being passed by the previous presidential administration.

The Corporate Transparency Act, passed as part of a defense spending bill in December 2020, requires the disclosure of the beneficial owners for most types of companies.

The bill directed the Financial Crimes Enforcement Network, or FinCEN, to craft a set of rules for the CTA's practical use by the end of last year, but no rules have been finalized to date. Only one-third of the anticipated rules have been announced in a preliminary form.

FinCEN issued a Notice of Proposed Rulemaking on Dec. 8 laying out the first draft of rules dictating what types of companies and real estate would be subject to the law, who would qualify as a beneficial owner and what sort of information those owners would be required to disclose. The comment period for the NPRM ended in February.

So far, FinCEN has yet to announce the final version of those rules or issue the other two anticipated NPRMs, meaning the CTA has yet to be enforced.

"Implementing the CTA and its beneficial ownership reporting requirements is a priority for FinCEN," a representative for the agency said in a written response to a Bisnow request for comment. "FinCEN is working diligently to implement these requirements in a timely manner, while also giving full consideration to the many complex issues associated with the implementation of the CTA."

A lack of resources at FinCEN is likely a major reason for the delay, but insufficient transparency is still an issue, according to an open letter urging faster CTA implementation addressed to the agency, signed by Sens. Elizabeth Warren, Sheldon Whitehouse, Ron Wyden and Marco Rubio, and published in May.

Warren's office did not respond to a request for comment by press time. 

In the time since the CTA was signed into law, the U.S. has risen from second to first place in the Financial Secrecy Index, a ranking of financial transparency by the nonprofit Tax Justice Network. Last year, a report by think tank Global Financial Integrity found that a majority of real estate-based money laundering occurs outside of the gateway markets that are already under heavier scrutiny thanks to Geographic Targeting Orders. 

Even once FinCEN issues its promised rules, questions remain about how effective it could possibly be at using the data it has been tasked with gathering to enforce the CTA. The nonpartisan Government Accountability Office found in 2020 that FinCEN has taken years to distribute information on money laundering subject to GTOs to law enforcement partner agencies.

For smaller towns and cities in the Midwest already victimized by money laundering and other accountability issues inherent to anonymous LLCs, hard-earned skepticism of out-of-town real estate buyers may do more to forestall further abuse of the U.S. financial system than enforcement actions by FinCEN, New York Times editorial board member Farah Stockman said in a column on Sunday.