NY Passes LLC Transparency Act Aimed at 'Unscrupulous' CRE

A bill that requires new limited liability companies to disclose their beneficial owner, initial reporting company and tax-exempt company—information that will be shared on a public database—was passed by the NY legislature last week.

The bill, which drew support from trade unions and public policy groups  and is expected to be signed by Gov. Kathy Hochul, aligns New York with a tough new federal Corporate Transparency Act, adopted by Congress in 2021 to combat money laundering, which goes into effect at the end of this year.

According to Emily Gallagher, an Assembly member from Brooklyn who co-authored the bill along with Brad Hoylman, a state senator, the new law will prevent “the worst actors in New York’s real estate market” from hiding corrupt activities using anonymous shell companies.

“When bad actors are allowed to hide, the whole industry takes the blame, because true companies cannot be identified,” Gallagher said, in a statement. “In a system of property ownership dependent on clear public title, we should be able to answer the question, ‘who owns what?’”

Trade groups supporting Gallagher and Hoylman’s LLC Transparency Act include the Hotel Trades Council and NYC’s District Council of Carpenters.

“This bill ensures that unscrupulous contractors are no longer able to hide behind anonymous LLCs, and that publicly searchable databases are set up for those doing business with the state,” Joseph Geiger of the District Council of Carpenters said, in a statement.

The federal Corporate Transparency Act (CTA) requires CRE firms to disclose LLC ownership to the US Treasury Department’s Financial Crimes Enforcement Network, known as FinCEN, beginning on Jan. 1, 2024.

According to an advisory from the law firm Stroock & Strook & Lavan LLP, the LLC Transparency Act builds on CTA’s framework to curb money laundering, tax evasion and campaign finance violations committed using CRE shell companies.

“In particular, the sponsors of the (New York) legislation are focused on anonymous owners of real estate and [their] purported higher number of code violations and evictions as compared to non-corporate owners,” the law firm’s advisory, issued on June 23, said.

A key difference between the LLC Transparency Act and the federal statute is that FinCEN’s database is held private in a confidential encrypted database—New York is creating a publicly available database on the NY Secretary of State’s website that will include the name and business address of the LLC and the full name of each beneficial owner of the LLC.

“Although the bill contemplates that the Secretary of State will establish procedures to allow a beneficial owner to apply for a waiver to withhold their name and/or business address, the onus will be on the beneficial owner to demonstrate that a significant privacy interest exists,” the advisory said.

A public policy group, Reinvent Albany, said the bill will curb the widespread practice of funneling illegal campaign contributions to politicians in New York State using anonymous CRE shell companies.

“Opening up beneficial owners’ identity to the public will help government regulators and law enforcement bodies determine whether LLCs are being used to illegally move cash and dodge taxes,” Reinvent Albany said, in a statement.