A Senate Banking Committee hearing this week on "Combating Illicit Financing by Anonymous Shell Companies Through the Collection of Beneficial Ownership Information" followed recent approval of legislation by the House Financial Services Committee that would affect beneficial ownership requirements for commercial real estate transactions.
- Senate Banking Chairman Mike Crapo (R-ID) said in his opening statement that the committee seeks solutions "… to deter money laundering and the financing of terrorism through the use of front companies, shell companies, shelf companies, opaque nominees, and other means to conceal and disguise the true beneficial owners of property and other assets."
- The Senate committee held a previous hearing on the subject last November. Another hearing focusing on industry perspectives is expected in June.
- Congressional consideration of the beneficial ownership issue comes after the Treasury Department's Financial Crimes Enforcement Network (FinCEN) amended the Bank Secrecy Act regulations in May 2018. FinCEN added a Customer Due Diligence rule requiring financial institutions to collect the beneficial ownership information of legal entities with which they conduct commerce. (FinCEN news release, May 2018)
- In the House of Representatives, the Financial Services Committee considered legislation (H.R. 2514) affecting beneficial ownership during a May 8 mark-up. (Committee Memorandum, May 3)
- The committee approved legislation introduced by Reps. Emanuel Cleaver (D-MO) and Steve Stivers (R-OH) – introduced the "Coordinating Oversight, Upgrading and Innovating Technology, and Examiner Reform Act" or the "COUNTER Act" by a vote of 55-0. The bill would require financial institutions to determine the beneficial owners involved in certain commercial real estate transactions – similar to a FinCEN Geographic Targeting Order (GTO) requirement affecting certain residential purchases. (CQ, May 9)
Congressional consideration of the beneficial ownership issue comes after the Treasury Department's Financial Crimes Enforcement Network (FinCEN) amended the Bank Secrecy Act regulations in May 2018.
- FinCEN's GTO issued in November 2018 requires U.S. title insurance companies to identify the natural persons behind shell companies used in all-cash purchases of residential real estate. The purchase amount threshold, which previously varied by city, is now set at $300,000 for each covered metropolitan area. The GTO also covers certain counties within the following major U.S. metropolitan areas: Boston; Chicago; Dallas-Fort Worth; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle. (Wall Street Journal – Nov. 15, 2018)
- Another House Financials Services Committee proposal introduced by Reps. Carolyn Maloney (D-NY) and Peter King (R-NY) was postponed during the May 8 mark-up, yet is expected to be considered in June. Their Corporate Transparency Act of 2019 ( H.R. 2513) would shift FinCEN reporting requirements on beneficial ownership from banks to the business community. (CQ, May 9 and May 21)
- The Maloney-King legislation would require every business with fewer than 20 employees to register their beneficial owners with FinCEN. Businesses would also need to update that registration with any changes (home or business address, driver's license change, change in ownership) within 60 days, and annually for the life of the business. Failure to do so would result in federal criminal penalties. However, the bill fails to address the required information and the process for compliance.
The Roundtable has raised concerns about beneficial ownership reporting requirements and the potential burdens they place on the real estate industry. (Coalition letter – Feb. 6, 2018). The Roundtable will continue to work with policymakers to stake out a balanced position on the issue that would inhibit illicit money laundering activity but does not place unnecessary costs and legal burdens on the real estate industry.