A federal law aimed at making anonymous business dealings in the United States essentially a thing of the past will go into effect on New Year’s Day, three years after becoming law.
The Corporate Transparency Act was a pet project of Florida Senator Marco Rubio, who raised alarm at over $1 billion connected to top Venezuelan officials flooding the real estate market in Miami.
Some of those cases resulted in federal indictments and convictions, but the use of anonymous shell companies has long been a headache for law enforcement trying to track down the origin of questionable money and business dealings.
“Shell companies involved in shady activities are a big problem, especially throughout South Florida,” Rubio told the Miami Herald in 2018, as he began pushing for the law.
In late December, the Financial Crimes Enforcement Network, a branch of the Department of the Treasury, announced that key regulations connected to the law were finalized.
Starting on New Year’s Day, shell companies and LLCs that do business in the US will have to fully disclose who is behind them and who actually owns the assets.
“This final rule is a significant step forward in our efforts to protect our financial system and curb illicit activities,” FinCEN Director Andrea Gacki said in a statement.
“[Beneficial Ownership Information] can provide essential information to law enforcement, intelligence, and national security professionals as they work to protect the United States from bad actors who exploit anonymous shell companies to engage in money laundering, corruption, sanctions and tax evasion, drug trafficking, fraud, and a host of other criminal offenses with impunity, while legitimate businesses suffer from their misdeeds.”
Companies that have existed before Jan. 1, 2024 will have until Jan. 1, 2025 to report the information. Companies started after that date will have 90 days to file the disclosures with the federal government.
Those details will be searchable by banks and the federal government to prevent money laundering, tax evasion and to keep corrupt foreign politicians from avoiding US sanctions through anonymous real estate transactions.
“Vladimir Putin’s invasion of Ukraine has only amplified the importance of the CTA,” Senator Rubio said in a statement issued last year. “The federal government cannot properly implement sanctions against Putin and his oligarchs if it does not know the full extent of their holdings.”
While the final regulation was in the public comment phase, real estate agents, title agents and journalist groups asked for access to the database. Commenters asked for the general public to have access to the database as well.
Those requests were denied by FinCEN.
Pilot program in Miami-Dade
Starting in 2016, FinCEN ran a pilot program requiring that anonymous shell companies buying pricey real estate in Miami-Dade County and Manhattan needed to disclose their true owners.
Economists who studied the impact of the 2016 regulation found that corporate all-cash sales of real estate properties dropped by a whopping 95%.
The pilot was considered such a success in cracking down on potential anonymous bad actors that Rubio pushed to further de-anonymize shell companies across the entire country. Democratic U.S. Senators Sheldon Whitehouse of Rhode Island and Ron Wyden of Oregon strongly supported the idea. After passage, Democratic Senator Elizabeth Warren, of Massachusetts, has become one of the reporting requirement’s most vocal supporters.
The bill was attached to the National Defense Authorization Act of 2021 that was passed by Congress in December of 2020. Former President Trump vetoed the law over provisions that would rename military bases and other facilities that had names connected to the Confederacy, but both houses of Congress voted to override the veto, and it became law on Jan. 1, 2021.
It marked the only time Congress overrode a veto during Trump's presidency.
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