In January, the Corporate Transparency Act (CTA) was signed into law by way of the National Defense Reauthorization Act for Fiscal Year 2021. Drafted for the purpose of curbing money laundering, financial crimes and other illicit activities perpetrated through the use of shell companies, the CTA requires that most corporations, limited liability companies (LLC) and other similar entities report specific identifying information on that entity’s beneficial ownership to the Financial Crimes Enforcement Network (FinCen).
Reporting companies must disclose the name, address, date of birth and provide an identifying number (license, passport or FinCen generated ID) of any individual with more than 25 percent of ownership interest in that entity or who exercises substantial control over the management of that entity. Reporting companies are defined as any business registering as a corporation, LLC or similar entity under United States or Tribal law. The CTA includes nearly 23 categories of companies exempt from reporting, most of which are financial services firms already subject to disclosure requirements under separate federal law. However, exemption from reporting can be claimed if a business has more than 20 employees and can demonstrate more than $5 million in gross revenue annually.
In April, FinCen published an advance notice of public rulemaking soliciting feedback on procedures and practices for establishing the reporting process. The National Apartment Association (NAA), in conjunction with the National Multifamily Housing Council (NMHC), the Real Estate Roundtable and the National Association of Home Builders (NAHB) provided comment to FinCen, emphasizing the need for a clear, transparent and secure set of rules.
While the CTA does not take effect until January 2022, the law is far reaching and will impact most multifamily firms, some who may be unfamiliar with its disclosure requirements. If not implemented with a clear set of rules and regulations, the CTA could result in an outcome of confusion, missteps, and ultimately fines on rental housing owners and management firms that are operating in good faith.
For more information on the Corporate Transparency Act and its requirements, please contact Sam Gilboard, NAA Manager of Public Policy.