Thanks to all of you who were able to join us at our annual Albion ski day. As most of you know our roots as a firm are in Alta, Utah. We began our investment management and financial advising journey in the basement of the Alta Lodge in 1982 and through the rest of the 1980’s officed up at the end of Little Cottonwood Canyon. While we’ve long since moved down into the Salt Lake valley our hearts are still attached to that mountain oasis. On to this quarters’ musings.
Money Laundering. Shell games. Hiding the true owner of assets for nefarious purposes. These are a handful of reasons behind one of Washingtons’ efforts; the Corporate Transparency Act (“CTA”), a part of the Money Laundering Act of 2020. Turns out rulemakers believe our current system of LLC’s, Partnerships, and Corporations allow the actual humans who own these entities to hide behind a nearly impenetrable wall of structures to mask their ownership. And perhaps through these opaque structures engage in illegal activities with very little risk of being discovered. The purpose of this law is to pierce that veil.
Unfortunately this will apply to many of our clients. Those with closely held businesses, family partnerships and/or limited liability companies, and closely held entities will find themselves subject to the reporting requirements.
The provided information is not public. Rather, the gathering entity – the Financial Crimes Enforcement Network (“FinCEN”) is authorized to disclose information to U.S. federal law enforcement agencies, with court approval to certain other agencies, to non-US law enforcement agencies upon request of a US federal law enforcement agency, and with consent of the reporting company to financial institutions and their regulators.
Prior to this act the burden of collecting beneficial ownership information fell on financial institutions. This shifts the burden to the entities themselves.
None of us are happy about additional reporting requirements and what feels like further intrusion of the federal government into our affairs. And this note could wax philosophic for paragraphs on the topic. But we’ll spare you such a soliloquy. And focus instead on who this applies to and what you must do to comply. To be clear we are not attorneys and nothing here should be considered legal advice. We encourage every reader to consult with counsel to determine if they have a reporting requirement under the act and if so to ensure reports are filed in a timely manner.
There are twenty-three exempt categories which can be summarized in a few categories. First are financial institutions; for example banks, securities issuers, credit unions, bank holding companies, broker-dealers, money services businesses, securities exchanges and clearing companies, investment companies and investment advisors, venture capital fund advisers, insurance companies, state licensed insurance producers, entities registered with commodity exchanges, accounting firms, pooled investment vehicles. These entities already have stringent reporting requirements.
The next significant category is made up of governmental entities. This includes federal, state and tribal entities and includes political subdivisions which means counties, cities, towns and school districts.
The final category are “large” operating companies. For this law “large” is considered to be companies with over twenty employees, over $5,000,000 in gross receipts from US customers, and with an operating presence at a physical office within the United States.
Know that the entities as outlined above are but an approximate summary of exempt organizations. It’s essential to dive into the details and if there is any question to retain counsel to determine whether or not your entity is exempt. Fines for non-compliance are punitive and run up to $500 per day of non-compliance which can accumulate up to $10,000. None of us want to get this wrong.
So what types of entities will be subject to the reporting requirements? Unfortunately many of the small family partnerships, LLC’s, trusts, and corporations we and our clients work with on a daily basis are subject to this law.
The information required with the reporting includes the legal name, any trade names, DBA’s or trading as names, the current street address and principal place of business, the jurisdiction of formation or registration, and the tax ID number. Beneficial owners must report their name, date of birth, residential address, an ID from an acceptable document (passport, US driver’s license), and the name of state or jurisdiction issuing the document. An image of the document must be provided and it cannot be expired.
Businesses in existence prior to January 1, 2023 must file by January 1, 2025. Businesses formed during calendar year 2024 must report within 90 days of creation of the entity and businesses formed after January 1, 2025 must file within 30 days of creation of the entity.
More information can be found through your legal counsel and online at fincen.gov/boi.
This quarterly note differs from the usual fare. However given the circumstances we believe it’s important to front and center with all of you regarding this new requirement as year end (and the risk of non-compliance) will be here in the blink of an eye.
Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance.