Notable Developments

  • Request for Signatories: Member letter to FinCEN
  • FinCEN says tech issues are your fault
  • Updated FAQ limits CTA exemption
  • HOAs have their day in court
  • TD Bank case shows the current system works

Legislative Update

Congresswoman Lisa McClain is circulating a letter (linked here) requesting that FinCEN delay the CTA’s year-end reporting deadline and is requesting support from additional offices. Word is Financial Services Committee member French Hill (R-AR) has signed on.

For staffers whose bosses would like to sign as well, please contact the Congresswoman’s LD Erik Kinney at Erik.kinney@mail.house.gov. To ensure we have a strong show of support we also ask that any other stakeholders contact their representatives and ask if they would consider being listed as a signatory.

Thank you in advance!

TD Bank Exposes CTA Weakness

When people ask us how we would attack money laundering, our answer is abandon the useless data grab and focus on risk-based policies that follow the money instead.

Case in Point: TD Bank made headlines last week that it was facing hefty fines and penalties after failing to prevent some $670 million in laundered funds from moving through its accounts. Per a DOJ press release:

TD Bank N.A. (TDBNA), the 10th largest bank in the United States, and its parent company TD Bank US Holding Company (TDBUSH) (together with TDBNA, TD Bank) pleaded guilty today and agreed to pay over $1.8 billion in penalties to resolve the Justice Department’s investigation into violations of the Bank Secrecy Act (BSA) and money laundering.

TDBNA pleaded guilty to conspiring to fail to maintain an anti-money laundering (AML) program that complies with the BSA, fail to file accurate Currency Transaction Reports (CTRs), and launder money. TDBUSH pleaded guilty to causing TDBNA to fail to maintain an AML program that complies with the BSA and to fail to file accurate CTRs.

All this from systems currently in place – systems the CTA sought to weaken!

According to the settlement, TD Bank willfully failed to implement and maintain their AML program and neglected to file Suspicious Activity Reports (SARs) on thousands of suspicious transactions. The CTA tried to replace the SARs regime – a regime where banks directly file reports on suspicious activities within their accounts – with its far less reliable general self-reporting scheme, in effect shifting the compliance burden from the large banks to their small business customers while reducing the overall effectiveness of the program. Not good.

Regulatory Update (Part 1)

A recent post from K&L Gates highlights a troubling warning from FinCEN when it comes to filing BOI reports:

However, as we quickly approach year end, that compliance window continues to shorten, Reporting Companies should ensure that they have positioned themselves to meet the 1 January 2025 filing deadline. We note that the analysis for reporting under the CTA can be complex and time consuming and one that must be done on an entity-by-entity basis. FinCEN has said that it cannot rule out potential technical issues or website outages due to the expected high volume of filings the last two weeks of the year. FinCEN’s stated position is that a potential failure or difficulties of their system to accept filings for technical reasons will not excuse late filings. As such, the CTA should remain a priority well before the last few weeks of the year to allocate sufficient time to determine which entities may be Reporting Companies and to prepare any required filings, and we are encouraging our clients to file sooner rather than at the last minute.

FinCEN is worried its systems won’t be able to handle high volumes come year-end but is preemptively putting the blame on filers.

Regulatory Update (Part 2)

FinCEN also quietly moved the goalposts when it updated its BOI FAQs to reflect a new position regarding the large company exemption. Here’s Piliero Mazza with the summary:

One of the requirements causing headaches for many businesses is the “operating presence at a physical office in the United States”—many companies abandoned their physical office space during COVID. A number of clients have inquired whether a home office in a personal residence qualifies as a “physical office” under the exemption. For a personal residence to qualify as the “physical office,” the entity that qualifies for the exemption must itself lease or own the physical location, regularly conduct business at that location, and the location must be physically distinct from the place of business of any other unaffiliated entity. Thus, a company must actually rent or own the space in the personal residence that it uses to qualify for the large operating company exemption.

In a post-covid world where remote work is increasingly becoming the norm, this is yet another example of how challenging CTA compliance will be.

Legal Update

The Community Associations Institute, the group representing Homeowners Associations across the country – yes, homeowners associations must file under the CTA, too – presented oral arguments in their case before the US District Court for the Eastern District of Virginia. As we’ve written previously, this is one of several cases proceeding across the country, all with the goal of shutting down the CTA’s reporting requirements before the start of 2025.

As a reminder, there are now nine cases in various courts across the country challenging the validity of the CTA. Here are the links:

  • Alabama (appealed): NSBA et al v. Yellen (11/15/2022)
  • Ohio: Robert J. Gargasz Co., L.P.A. et al v. Yellen (12/29/2023)
  • Michigan: Small Business Association of Michigan et al v. Yellen (3/1/2024)
  • Maine: William Boyle v. Yellen (3/15/2024)
  • Texas: NFIB et al v Yellen (5/28/2024)
  • Massachusetts: BECMA et al v Yellen (5/29/2024)
  • Oregon: Firestone v Yellen (6/27/2024)
  • Utah: Taylor v Yellen (7/29/2024)
  • Virginia: Community Associations Institute v. Janet Yellen (9/10/2024)