Andrew Weiner joins Joel to describe the Corporate Transparency Act (CTA), its purpose, what led to its passage, and how it intersects with Customer Due Diligence (CDD) rules and the Know Your Customer (KYC) requirements of the Financial Crimes Enforcement Network (FinCEN). Part 1 of 2.
Transcripts
Joel Simon:
Hi, and welcome to Pillsbury’s Industry Insights podcast, where we discuss current legal and practical issues in finance and related sectors. I’m Joel Simon, a partner at the international law firm Pillsbury Winthrop Shaw Pittman. Today, I’m joined by Andrew Weiner, a partner in Pillsbury’s real estate group. Andy represents domestic and foreign clients in equity and debt transactions, the creation of real estate funds and joint ventures, and transactions involving distressed real estate. He has deep experience in the hospitality and REIT sectors and in leasing. Andy’s clients have included funds, family offices, institutional lenders, universities, non-U.S. investors, and New York City developers. Welcome to our podcast, Andy.
Andrew Weiner:
Hello. It’s great to be here, Joel, thank you for having me.
Joel Simon:
I know you’re a real estate transactions lawyer, but today I’m really interested in learning about a new legal development that spans multiple practice areas and is industry agnostic. And I know from reading some articles you’ve written and a presentation I attended, that you’ve really gotten a jump on this evolving story? What can you tell us about the Corporate Transparency Act?
Andrew Weiner:
Historically, except for regulated companies and industries, the creation and administration of private legal entities in the United States was a simple act and did not require disclosure publicly or to any governmental authority of the entity’s ultimate beneficial ownership and control. This allowed efficiency and privacy, both legitimate and perennial goals. However, increasingly since 9/11, the shielding of this information has been seen as a problem. The concern is that secrecy facilitates money laundering, financing terrorism, and tax evasion, both within the U.S. and internationally. The trend has been for increased disclosure. The fact that the U.S. was graded as non-compliant, the lowest rating, by FATF, the preeminent international intergovernmental agency in the field, has pressured the United States to seek a more robust disclosure regime, as have complaints by law enforcement entities in the in U.S.
of this year,:
Simon:
What does the CTA do?
Andrew Weiner:
The CTA instructs FinCEN to create a beneficial ownership registry—a secure, non-public database containing information provided by reporting companies (a defined term) naming individuals who are direct or indirect beneficial owners (another defined term). While the database is not publicly accessible, it is available to FinCEN and other federal, state and, with some limitations, non-U.S. law enforcement agencies, including tax authorities, subject to some exceptions and provisions intended to facilitate security of this information. Financial institutions will also be entitled to access information if their borrower consents. The information to be provided as to each individual beneficial owner is full legal name, date of birth, current address, and a unique identifying number such as a passport or driver’s license. Among other things, this will centralize information about each individual by providing a one-click a list of the entities in which he or she has a material ownership or control interest. This of course has raised privacy concerns since the information is unverified and not subject to Fourth Amendment constitutional law of scrutiny. Moreover, the information needs to be collected and stored by the reporting entity and may be subject to subpoena issued to or means unauthorized by the entity. Note that lending institutions are already beginning to require potential borrowers to agree to a forward consent to disclosure of database information. This is likely to become a near universal requirement.
Joel Simon:
This sounds like it could affect pretty much every small business and probably every new entity that is formed. My understanding is that it does not apply to larger or more established companies. But it would seem that funds, new investment vehicles, and almost any typical startup business would be required to report information that has historically been kept secret. Why is this such an important development?
Andrew Weiner:
rected to occur by the end of:
he Securities Exchange Act of:
A special requirement is imposed on entities that would act as a government contractor. Within two years of the effective date of the CTA, any contractor or subcontractor subject to the reporting requirements of the Federal Acquisition Regulation must disclose its beneficial ownership prior to issuance of the contract award. The exemptions above do not seem to apply here, but regulations will clarify this.
Joel Simon:
This is a great start for a discussion on an important topic. With so much more to talk about on the CTA, let’s make this a two-part episode and continue our conversation next week.
Andrew Weiner:
Thanks for having me join you, Joel.
Joel Simon:
And here’s one last bit of news. Now, for the first time, you can catch all our podcasts episodes on some of your favorite podcast streaming apps, Spotify, Apple Podcasts, and Amazon Music. With more to come soon. Until next time, thank you for listening to Pillsbury’s Industry Insights Podcast.
