New Federal Legislation Sweeps Co-ops into Reporting Requirements
Law Aimed at Shell Corporations and Hidden Investments Creates Privacy and Compliance Concerns
By Randall Pentiuk
Most housing cooperatives, along with other corporations, now must come into compliance with the reporting requirements of the Corporate Transparency Act (CTA). Passed by Congress in 2021, and effective as of January 1, 2024, the CTA is intended to protect national security and identify those who would use shell companies and other organizations to hide or benefit from their ill-gotten gains.
Corporations subject to the CTA, including the vast majority of co-ops, must report their beneficial ownership information by January 1, 2025, to FinCEN, the Financial Crimes Enforcement Network and continue to meet the reporting requirements on a yearly basis. Prior to implementation of the CTA, the burden of collecting beneficial ownership information fell on financial institutions, which are required to identify and verify beneficial owners through the Bank Secrecy Act’s customer due diligence requirements.
Who Must Report
CTA defines a reporting company as either a domestic reporting company or a foreign reporting company. Domestic companies include “corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.”1 Again, the majority of housing cooperatives fall under domestic reporting companies because most housing cooperatives are formed as non-profit domestic corporations with their respective state’s secretary of state or similar office in the U.S.
FinCEN defines a beneficial owner as an individual who “either directly or indirectly: (1) exercises substantial control…over the reporting company, or (2) owns or controls at least 25% of the reporting company’s ownership interests.”2 The guidelines are silent regarding property managers and management agents, but at a minimum this would apply to cooperative board members.3
What Must Be Reported
Here is a list of information that the reporting company is required to report about the company:
- Legal name of entity
- Any trade names, such as “doing business as”
- Current street address of principal place of business
- Jurisdiction of formation or registration
- Taxpayer ID
- Whether this is an initial report, corrected report, or updated report (Indicate when filing)
Information regarding beneficial owners that the reporting company is required to report is as follows:
- Individual’s name
- Date of birth
- Residential address
- Identifying number from an “acceptable identification document such as a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of identification document…(Reporting companies) also have to report an image of the identification used to obtain the identifying number.”4
How Should Information Be Filed?
As the CTA is now in effect, housing cooperatives are required to file their information electronically on an annual basis. However, should there be any changes in the reported information, updated reports must be filed no later than thirty (30) days after the change. This means that whenever there is an address change for a board member; removal or addition of board members or change in unique identifier (passport/driver’s license) of an individual (including a copy thereof), an updated report must be filed.
Willful failure to report complete or updated beneficial ownership information may result in civil or criminal penalties, including monetary penalties of up to $500 for each day that the violation continues. Other possible penalties include imprisonment for up to two years and/or a fine of up to $10,000. Likewise, there are penalties for people who interfere with a company’s reporting to FinCEN by either attempting to block reporting, providing incomplete information when reporting or providing false information when reporting.
Protect Your Information
At this time NAHC is working with allies towards a provision that excludes co-ops from this onerous regulation. Until that is achieved, however, housing cooperatives are not exempt, so boards of directors will need to work with their cooperative attorneys to ensure that accounts are set up properly and the correct information is being reported by designated individuals; however, they also must safeguard that individual information from prying eyes.
Information supplied to the government is confidential and not publicly available, but FinCEN is authorized to disclose the information to: 1) U.S. federal law enforcement agencies, 2) state, local or tribal law enforcement agencies with court approval, 3) non-U.S. law enforcement agencies, prosecutors or judges based upon a request of a U.S. federal law enforcement agency, and 4) a request made by a financial institution subject to customer due diligence requirements, or 5) with consent of the reporting company, to financial institutions and their regulators. There is no provision to expunge information submitted.
Financial Crimes Enforcement Network. Beneficial Ownership Information
Reporting: Frequently Asked Questions, 2,
https://www.fincen.gov/boi, January 17, 2024.
Financial Crimes Enforcement Network. Beneficial Ownership Information
Reporting: Frequently Asked Questions, 6,
https://www.fincen.gov/boi, January 17, 2024.
Financial Crimes Enforcement Network. Beneficial Ownership Information
Reporting: Frequently Asked Questions, 6,
https://www.fincen.gov/boi, January 17, 2024.
Financial Crimes Enforcement Network. Beneficial Ownership Information
Reporting: Frequently Asked Questions, 16,
https://www.fincen.gov/boi, January 17, 2024.
Randall Pentiuk is vice president of NAHC and is managing shareholder at Pentiuk, Couvreur & Kobiljak P.C., with offices in Wyandotte, Mich., and Chicago, Ill.