Last month’s post explained how setting up a dummy company can help seal a deal. Unfortunately, dummy companies can be used for far more nefarious purposes, including money laundering, terrorism financing, and tax fraud. For example, the New York Times and 60 Minutes revealed how high-end real estate has been snatched up by dummy companies linked to foreigners with ties to organized crime, despotic regimes, or both.
They were able to use dummy companies to anonymously move money into the United States, because most States do not require organizers of corporations or LLCs to disclose their true owners. That’s the case in Texas. The certificate of formation for a Texas corporation must identify its initial directors but not its shareholders. And the organizer of a Texas LLC can conceal its members by setting the company up as a manager-managed LLC and then appointing a non-member as the manager. While the ability to conceal the company’s owners is good for a buyer seeking to obtain a lower price or discourage competitive bidding, it presents a significant challenge for law enforcement and intelligence agencies.
To combat the illicit use of dummy companies, Congress enacted the Corporate Transparency Act. It was tucked away in the National Defense Authorization Act, which became law on January 1, 2021, when Congress overrode President Trump’s veto.
The Corporate Transparency Act generally requires corporations, LLCs and other similar entities to file reports on their beneficial ownership with the Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury beginning next year. While the Corporate Transparency Act was aimed at malign actors using dummy companies, its obligations, like the rain, fall on the just and unjust alike. Millions of companies will have to file new reports on their beneficial ownership with the federal government, regardless of whether they are dummy companies or engaged in any illegal activity. While the scope of those reporting obligations are not clear yet, here’s what your company needs to know now: Continue Reading The Corporate Transparency Act: What Your Company Needs to Know About the New Federal Reporting Requirements