The Misplaced Transparency

“Corruption is paid by the poor.”

- Pope Francis

So, this could be a problem.

In 2021 the federal government amended the Anti-Terrorism Act in 2020 by adding to it the Corporate Transparency Act, also known as the CTA. The intent was and is to stop money laundering. But its effect has spread to condominium associations, a strange place to think money launderers might be working. Let me explain.

Let's say you are, for example, a major drug dealer. You get a lot of money in cash. If you repeatedly go to the bank, every day or nearly so, and deposit large sums of crinkled, low denomination bills, i.e. the proceeds of your web of street dealers, the banks take notice and notify the federal government.

Large deposits of cash without a legitimate backing business are suspicious. They, rightly, trigger federal interest. So it is not uncommon for large scale drug dealers to push their illicit cash through cash heavy businesses like laundromats, nail salons, and restaurants. The illegal money is added to the regular cash deposits, books are created and cooked like the dishes served to patrons in order to try and legitimize the large cash deposits, and the bank account grows. The money is then taken out and invested in paintings, cars, crypto-currencies such as bitcoin, legitimate businesses and so on. So the dirty money has been “laundered" and good money is taken out.

To add to the difficulty of tracking ownership, frequently these bank accounts are held in the names of shell corporations, i.e. corporations with no real business purpose, few or only one shareholder, and no real place of business, where the ownership of one such shell corporation leads to another and another, in different states, countries and regions of the world, making it harder and harder to find the persons who are profiting, i.e. who the criminals are.

How does this translate to condominium associations? When our republican and democratic representatives and senators passed the Corporate Transparency Act in 2020 it attempted to crack the shell corporations open and see who actually owns them, by requiring all officers and directors to provide personal information to the government which no criminal wants to give anyone, never mind the United States government. The information required to be forwarded to the government includes the name, address, and date of birth of every corporate officer or director. It has to be accompanied by a copy of either a passport or a valid driver's license.

By acquiring this information, the government would be able to flag for investigation of money laundering those corporations owned by, for instance, one person, a foreigner with no local address or passport, or a corporate lawyer who files hundreds, perhaps thousands, of such corporations where the attorney is the only director and officer.

All of these interactions and bank transactions are monitored by the Financial Crimes Enforcement Network (known as FinCEN) which is a bureau within the Department of the Treasury that collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crimes. (In the 2016 movie The Accountant, Ben Affleck as an accountant for money launderers is chased by FinCEN agents led by J.K. Simmons and Cynthia Addai-Robinson. For those interested in a sequel, it began filming in March of this year.)

How does the Corporate Transparency Act affect your condominium association? If it is not incorporated, it doesn't. But if it is, it does. And, in particular it effects every officer and director in your condominium association.

The Corporate Transparency Act notes all “beneficial owners” have to report their personal information. A beneficial owner is someone who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (1) exercises substantial control over the entity; or (2) owns or controls 25% or more of the ownership interests of the entity.

“Ah ha,” you say. You are just one of perhaps seven directors and not an officer. “Oh no,” says FinCEN. You have to report because you serve as a senior officer of the company, as opposed to just an owner who is on the board of directors.

The language of the Corporate Transparency Act will likely exempt management companies because they don't actually own any/many units and don't sit on the board or act as an officer, but perhaps not as many management companies issue fines and collection letters without notifying the board first and getting approval. The more control a management company has, the closer it gets to being a beneficial owner and a required reporter.

This is also going to apply to declarants because the Corporate Transparency Act makes clear that anyone who has the authority over the appointment or removal of a majority of the board of directors of the company, now also has to report. And since declarants have that authority until they turn over control (there's the word again) of the association to the owners, they are a mandated reporter.

The Corporate Transparency Act does have some exemptions from the requirements of reporting for some corporations, which shows the legislators considered that the CTA really should not apply to every corporation. But the exemptions are for other entities that already have to report to the federal government, including banks, entities regulated by the Securities Exchange Act, insurance companies, and a few others … but not condominium associations. So, your officers and board members are stuck and are going to have to file the appropriate paperwork with FinCEN, or resign.

Because of the upheaval the implementation of the Corporate Transparency Act may have, legislators included language that pushed off the requirement of reporting personal information until January 31, 2025. But after that date, the fines for non-compliance are $500.00 per day up to a total of $10,000.00. Oh, and up to a four year sentence in jail, too.

And the requirements to report renew each time there is a change on the board of directors or a change in who the officers are. Say someone sells their unit and someone is appointed to take that seat - another FinCEN form has to be filed. After every annual meeting, when any new member is elected to the board of directors - another FinCEN form has to be filed. Or any time there is an officer change - another FinCEN report has to be filed. Each time, failure to comply and send in the updated FinCEN form means the individual director or officer is subject to a daily fine of $500.00 up to a total of $10,000.00 and a prison sentence of up to four years.

Further, if any individual person owns more than 25% of the Association then that person also has to report to FinCEN or be subject to the fines and potential imprisonment. So, if you live in a duplex that was converted into a two-unit condo association, you have to report. The CTA will affect the many, many two, three and four unit associations more than large associations. Why? Since, by definition each such association controls at least 25% of the interests in the condo association, it triggers the CTA, requiring all of the owners, sometimes multiple ones on a deed, to file the FinCEN paperwork, or to do so or be subject to the noted fines and potential imprisonment.

What should you do? Well, CAI (the “Community Association Institute”), which is the nationwide group that serves condominiums, and from where I get much of my meager knowledge, is lobbying Congress for an exemption for condominium associations, because right now there are none. So your association can wait and hope something changes before January 31, 2025.

Also, you can contact the New Hampshire Congressional members, Senate and House of Representatives, and let them know this law is silly because your condo association is a nonprofit organization; can't even raise fees $10.00 per year without some grumbling; you are certainly not money launderers; and carve out an exemption for all small condo associations, defined in New Hampshire as being no more than 25 units, where no one owns more than 25% of the Units, and let condominium associations get back to dealing with its mundane, everyday matters, such as what to do about dog poop, and not have to worry about whether its federal government thinks 75 year-old Gladys is a money launderer and wants proof that she is not.

Further, as I have explained in the past, the New Hampshire Supreme Court, eight years ago already noted condo associations don't have to be incorporated. Being incorporated means conflicts, as the Court noted, with the New Hampshire Corporations Act leading to higher legal fees and no greater protection for the officers or directors as they are already indemnified and protected by the Association members and and its insurance policies as required by the Condo Act. Or you can stay incorporated and have to prove you are not a money laundering organization.

On the up side, recently a federal court in the 11th circuit, out of Alabama, ruled the Corporate Transparency Act unconstitutional. The government has appealed the decision, a process which could take years. The case is National SmallBusiness United v. Yelle.

In the meantime, I'm just going to go back to hiding my money under the mattress. Notwithstanding anything else to the contrary here or in the Declaration, any Common Expenses associated with the maintenance, repair, renovation, restoration, or replacement of any Limited Common Area may be specially assessed against the Unit to which that Limited Common Area was assigned at the time such expenses were made or incurred in the discretion of the Board of Directors. This provision shall also apply to the expansion or creation of Limited Common Areas pursuant to RSA 356-B:19, III.