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Category: Financial Lessons

Fighting Financial Crime Through the (CTA) Corporate Transparency Act

New Reporting Requirements – Deadline Approaching Soon

As your trusted financial partners, we are here to share insights that not only keep you informed but also help you feel more connected to the financial world around us…and in some cases help you avoid substantial fines. Recently, the Corporate Transparency Act (CTA) has been making waves, and understanding it can empower you in your business decisions.

What is the Corporate Transparency Act, and Why Are We Having to Do This?

The Corporate Transparency Act, passed in 2021 as part of the National Defense Authorization Act, aims to shine a light on business ownership in the U.S.  Think of it as a way to pull back the curtain on who’s really behind companies, especially those that might be used to hide illicit activities.  This law requires certain businesses (many businesses/entities) to disclose their beneficial owners — the individuals who ultimately own or control the company.  If you own an LLC or small corporation, this likely applies to you.  It’s a big step toward fostering transparency and accountability in our economic landscape.

Filings can be done online through the FinCen’s website at fincen.gov/boi, which is actually quite helpful.  For entities formed prior to 2024, the deadline to file is January 1st, 2025.  Failure to file can result in penalties up to $591 per day.  For entities formed in 2024, you are given 90 days from formation.  Entities formed after 2024, and any entities making updates after a change in the reported information, will have 30 days after the occurrence to file.  It is expected that most companies can file online on their own.  Many attorneys are familiarized with the act and filings, and they are available to assist as needed.  I do recommend filing soon, so that if you find out that you need help, you can obtain assistance before the deadline.

Why is the CTA Important? – The Reality of Financial Crime

We’ve all heard about the shady dealings that can happen behind the scenes.  It’s easy to think these stories are just sensationalized news, but the truth is startling:  An estimated $2 trillion to $4 trillion is laundered each year according to the IMF and World Bank!  Money laundering and funding criminal activities and terrorism are not just abstract concepts; they have real-world implications that affect everyone.

What is Money Laundering?

Money laundering involves taking funds obtained through illegal methods “dirty money” and “cleaning” them by integrating them into the financial system and making them appear to be legitimate.  It is debatable where the term “money laundering” originally came from.  Some would attribute it to Al Capone and others’ utilization of laundromats to figuratively launder or clean money gained from illicit activities.  Cash businesses such as laundromats are often more susceptible to money laundering due to the difficulty in tracking the transactions.  The term may also have begun with the more literal use of actually cleaning old bills.  In 1916, it was estimated that it cost $1.30 to print 100 notes but only $0.30 to clean them.  Over the years, the term took on the more common interpretation we have now, and certainly by the 1970s and 1980s, it had made its way into common financial jargon.

Let’s take a stroll down memory lane with some notable examples of money laundering:

Al Capone – The infamous mobster wasn’t just about the flashy lifestyle; he was a master at laundering money through bars and gambling operations. His story reminds us that behind every glittering facade, there can be a murky reality.

Wachovia Bank Scandal (2010) – Wachovia, now part of Wells Fargo, was implicated in a scandal involving the laundering of more than $420 billion in drug trafficking proceeds through its accounts and settled the case by paying $160 million.  The bank failed to report suspicious activities related to money transfers from currency exchange businesses in Mexico, showcasing significant lapses in compliance that allowed criminal enterprises to exploit the banking system.

HSBC Scandal (2012) – HSBC, one of the world’s largest banks, was fined $1.9 billion for failing to monitor transactions linked to drug cartels in Mexico.  Over several years, the bank allowed billions of dollars in suspicious transactions to flow through its accounts without proper scrutiny.  It’s a classic example of how large institutions can fail to safeguard against financial misconduct.  Since then, however, the bank has worked hard to improve their practices, and the Fed ended enforcement actions against the bank in 2022.

The Panama Papers – This leak exposed how some wealthy individuals have used offshore entities to hide assets and launder money, showing that financial crime knows no boundaries.

Of course, not all cases are this large or make the headlines.  Money laundering exploits can exist on smaller scales through fronts such as car washes, property management companies, or even…former professors…

Dr. Bruce Bagley – A former University of Miami professor and known expert and author on crime and corruption was himself convicted of laundering $2.5 million through accounts in his name and in the name of a company he had created.

There is a certain entertainment factor and intrigue to the concept as shown through popular shows in recent years:

Marty Byrde from Ozark:  In the hit series Ozark, Marty is a financial planner who gets entangled with a Mexican drug cartel and moves his family to the Ozarks to launder money through various legitimate businesses, including a struggling marina and a casino.  While fictional, Marty’s escapades highlight how easily seemingly innocent businesses can be used to mask illicit activities and the importance of vigilance and transparency in financial dealings.

Virgin River:  In the popular series Virgin River, even the quaint town is not immune from bad actors.  In the show, a sawmill and an RV campground are used for illicit purposes, and even seemingly innocent parties are pulled into the dangerous world of drug trafficking and related money laundering activities.  The show hints at the complexities of running businesses in a small town and how easy it can be for individuals to blur the lines between legitimate and illegitimate activities, emphasizing the need for clarity and oversight.

These stories give you an idea of why regulations like the CTA are developed to keep our financial system honest and transparent.

How Financial Institutions Monitor for Anti-Money Laundering

So, how do banks and financial institutions help combat money laundering?  Think of them as the gatekeepers of financial integrity:

  1. Know Your Customer (KYC): This is the first line of defense. Financial institutions get to know their clients by verifying identities and understanding their business activities.  It’s a bit like getting to know your neighbor before borrowing a cup of sugar.
  2. Transaction Monitoring Systems: These systems keep a watchful eye on transactions, flagging anything that looks out of the ordinary. It’s like having a vigilant friend who notices when something feels off.
  3. Suspicious Activity Reporting (SAR): When something doesn’t sit right, institutions file SARs with the Financial Crimes Enforcement Network (FinCEN). This helps law enforcement dive deeper into suspicious activities.
  4. Risk Assessment: Institutions regularly assess their risk levels. Understanding where vulnerabilities lie allows them to tailor their monitoring and protect themselves from potential issues.
  5. Employee Training: Employees are trained to recognize red flags and to know the protocols for reporting suspicious activities.
  6. Collaboration with Law Enforcement: Financial institutions often work hand in hand with law enforcement, sharing vital information that can lead to effective interventions.
  7. Regular Audits and Compliance Checks: They conduct audits to ensure compliance with anti-money laundering (AML) regulations. This helps maintain accountability and trust.

We’re all in this together!

The Corporate Transparency Act represents a significant shift in how businesses are regulated in the U.S.  By increasing transparency and accountability, it helps combat financial crimes that can undermine the economy and national security.  If you operate an LLC or small corporation, it’s vital to stay informed about these changes and ensure that your business complies with the new requirements.

Since this is new legislation, unfortunately word of the requirements seems to be moving slow.  Feel free to forward this message to others you know that may be impacted.

As always, we are here to help you navigate these developments.  Unfortunately, due to the legal nature of interpreting the legislation and requirements, we can provide limited guidance in the area of the CTA.  We recommend reviewing the FinCen website and associated FAQ’s and consulting with your attorney to further determine how the provisions may affect you or your company.

To learn more about CapSouth Wealth Management and how we can help, visit our website at www.capsouthwm.com/what-we-do or contact our office to schedule an appointment with an advisor at (334) 673.8600.

Article by:

SCOTT MCDOWALL, CFP®

Sources:

https://www.mentalfloss.com/article/502449/myth-how-al-capone-gave-us-term-money-laundering
https://www.state.gov/anti-money-laundering-and-countering-the-financing-of-terrorism/
https://fincen.gov/boi
https://www.npr.org/2010/03/18/124807736/wachovia-settles-money-laundering-case
https://www.reuters.com/business/finance/us-fed-terminates-enforcement-action-against-hsbc-2022-09-02/
https://www.barrons.com/news/key-background-on-the-panama-papers-scandal-06242c47
https://www.fbi.gov/history/famous-cases/al-capone
https://www.nytimes.com/2021/11/17/us/bruce-bagley-money-laundering-venezuela.html

 

CapSouth Partners, Inc, dba CapSouth Wealth Management, is an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences. This information has been prepared solely for informational purposes, is general in nature and is not intended as specific advice. This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from this article. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to a third-party entity. Some information in this article was produced with the assistance of ChatGPT (October 24 Version); Chat GPT is an artificial intelligence model owned by OpenAI. CapSouth is not affiliated with OpenAI.

 

 

 

 

Control and Influence

As the father to four young men, one of my goals is to successfully make the transition from a relationship of control to one of influence. Control is easy, right?  Do this, don’t do that. For example, don’t take off your clothes and turn the garden hose on the sweet little Japanese family that your mom tutors.  In my defense, I didn’t think I would have to provide such counsel to my 4-year-old, but I guess I should have. First-time parent rookie mistake, I guess.  Or please do take off your clothes before using the restroom. Thought I covered that in the first several years or so, but I guess not. (Sophomore slump with #2 – child #2, that is.)  And one of my personal favorites of #2, please don’t tell the hairy man at the pool that you thought cavemen were extinct. On second thought, maybe control isn’t that easy. But in the world of personal finance, believe it or not, control is a bit more obtainable.

Today and every day, and in every facet of our lives, we should be focusing more on things we can control and worrying less about the things we can’t. In the world of finance, for example, none of us has any control over the markets, taxes, interest rates, inflation or the headlines of tomorrow’s news outlets. Yet, such things can affect our outlook on our financial situation and lead us down the path of worry and anxiety. And left unchecked, that worry can lead to paralyzing fear, or possibly worse, emotionally charged decisions. Both of which can be detrimental to our financial wellbeing. So, what should we focus on?  There are essentially four primary factors within your control when it comes to your finances. I’ll present these in a “self-fulfilling prophesy” kind of way.

I can control how much I spend.  Unless you have an unlimited supply of resources, your spending will need to be controlled. Similar to exercise, it can be difficult and painful, but it can be done. And you’ll be better off because of it. Let’s define spending as how much you’re choosing to live on every day and how much you’re choosing to spend to enjoy your life today and in the years to come.

I can control how much I save.  I will save X amount now, so that I’ll have Y amount to spend later. If you’re still in the wealth accumulation stage, you or your spouse likely have access to a 401(k) retirement savings plan. And in some cases, your employer may incentivize you to save for retirement by offering an employer “match.” That is, your employer will match a certain percentage of your contribution (to your plan) up to a certain percentage of your salary. In such a case, your decision to save not only provides for your contribution to be spent later, but your employer matching contribution as well.  The industry term there is “free money”. And yet another contributor to your retirement account will be the law of compounding returns – what Einstein called the 8th wonder of the world – whereby you’re earning returns on both your original investment and on returns you received previously. Picture a snowball rolling down a mountain, picking up more snow as it goes. Before long, your snowball is a heaping mound of cash. You catch my drift.  See what I did there? (Bonus Track:  Look up the Rule of 72 and thank me later.)

I control how much risk I take. Indeed, you do. Not every person that invests in the stock market is 100% invested in stocks.  In fact, an August of 2024 survey from Empower Retirement has the average stock allocation for those in their 20s, 30s and 40s to be approximately 50% of their total portfolio. Can you guess which age group from that same survey is credited with holding the 2nd highest percentage of cash at a whopping 30.8%?  Wrong – those in their 20s. Bested only by retirees 70 and older.1 A post for another day, maybe, but such a conservative and seemingly “risk-averse” strategy may be anything but.

I control the timing of my financial decisions. Yes, you do. Like when you pull the trigger on a large purchase, or decide to retire, change jobs or (these days) even take on a second job. Also within your control is the timing of when to save more, spend less, invest more aggressively. They say, Timing is everything. I don’t know about everything, but it’s a fairly big lever to pull with respect to your financial security.

As I’m sure you’ve recognized by now, these four areas of control are inextricably linked.   You’d be hard pressed to change one without affecting the other. Again, assuming resources are finite, if you choose to spend more, then you’ve also chosen to save less. If you’re spending less, you very well could be saving more. And saving more (or saving less) will certainly subject your goals to more (or less) risk, right? If, for example, you’re spending a great deal of money now on Alabama season tickets, you’ll presumably have less money saved to put your daughter through Auburn. (We’ll do anything for our kids, won’t we?) And anytime you’ve chosen to make any changes in savings, spending or risk taken – or not – you’ve made a decision in timing.

So where does influence come in? Great question. Influence certainly has its role in your finances. As we’ve stated, none of us will likely ever move the stock market, nor will we affect the tax structure or control interest rates.

Each of those, however, will influence what we can control.

Let’s say inflation rises – a lot. And you find yourself barely having the money for the things you need – much less the things you want. Now what? Well, that means you’ll need to prioritize and spend less on the things you could do without and save more for the things you really want. Or possibly change the amount of risk you’re taking to increase the chance you’ll make more money for the things you want. Maybe you’ll choose to work longer? Or maybe you’ll have to find a new job or possibly a second one?  Or it could easily be some combination of these. It’s important that we understand when it’s time to adjust the factors that are within our control – our spending, our saving, the risk we take, and the timing of our decisions. Many factors can and will influence our decision-making process. Which begs the question,

Do you know what matters most to you in your financial life?

A quick answer can be found in your check register. Or for those of you under the age of 50, your online bank statements.  Your answer to that question will guide you as you create a plan to help you live your one best financial life. And through that financial plan, you’ll be able to manipulate those areas within your control in anticipation of those influencing forces outside of it.

As for my boys, #1 is married and finishing up med school, #2 is a junior at Auburn and literally creating his own path toward a career of film/sharks/ecotourism, #3 is a senior in high school and likely to change the world through music, and #4 is a sophomore in high school and winning the hearts of college basketball and soccer coaches alike. All accomplished young men in their own rights, but all benefiting from the influence of those who’ve gone before them. I’m honored to be a part of that counsel.  Whether serving as a father or a financial advisor, having influence for the betterment of one’s life is a legacy I’m proud to be a part of.

Article by:  Billy McCarthy, Investment Advisor

To discuss this article further or to learn more about CapSouth Wealth Management, visit our website at www.capsouthwm.com or www.capsouthwm.com/what-we-do/ Call 800.929.1001 to schedule an appointment to speak with an advisor.

1  What is the average allocation by age? (Empower Retirement, The Currency, 08.07.24)

 

Investment advisory services are offered through CapSouth Partners, Inc, dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. CapSouth does not offer tax, accounting, or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences. This information has been prepared solely for informational purposes, is general in nature and is not intended as specific advice. Any performance data quoted represents past performance; past performance is no guarantee of future results.

 

 

 

Financial Lessons

Lessons For Any Season

When I was a kid, Roswell was but a small rural town about 25 miles north of Atlanta. Not at all the seamless expanse of Atlanta that it is today.  Life seemed to move at a much slower pace then. News didn’t travel as fast, divided highways weren’t even a thing, and kids still used words like “sir” and “ma’am”.  And there were consequences when those words weren’t used, as I can attest.  Both of my parents worked outside of the home, and I spent a good deal of my summer breaks at Grandmom and Pop’s house. Pop worked the majority of his career at Lockheed Martin assembling airplane engines as I recall. Upon retiring from Lockheed Martin, he continued working in his other responsibility – that of a farmer.  If it could be grown, they grew it. And if they grew it, they ate it. Every bit of it. Nothing went to waste.

Forty-five years ago this summer, I spent 24 hours with my grandparents that I’ll not soon forget. Nothing out of the ordinary and certainly not by today’s standards, anyway.  It was just your run of the mill stifling hot day in June. But on this day observations were made, lessons were learned, and the takeaway has never been forgotten. Some lessons may be learned the hard way, folks may say.  That is, from personal and painful experience. And then other lessons aren’t hard at all. They’re blessings, actually. (Maybe they’re both blessings. An article for another day, maybe.)   Both can be experiences that leave a mark and one you won’t soon forget. Financial lessons are no different in that regard. You learn them, you remember them, and you instill the virtue of a lesson learned with those you love.

In my tenure as an advisor working with clients and 401(k) participants, there’s a certain sensibility, and I’m speaking in generalities here, that my more seasoned (older) clients seem to live with than maybe my younger clients. That is, clients representing an older generation tend to appear more comfortable with financial pressures or realities? And why would that be? Is it merely the fact they made it through them?  Mmm…it goes deeper than that, I think. I’ve compiled a small list of common life and financial life lessons I’ve heard (and learned) from my elders:

 

  1. It’s better to go to bed wanting, than owing.  And of course we’re talking about debt. Did you know we’re currently at an all-time high in our country for consumer debt? The largest increase coming from – you guessed it – credit card debt1. And the irony is that particularly in times of higher inflation, you’re better served paying down debt, not increasing it. While your single dollar won’t buy nearly as much as it used to, that same single dollar will still pay off one single dollar of debt. My clients talk of the lack of patience or the need for instant gratification in some of their much younger family. A common response to a want or need from the younger generation if they don’t have the cash?  “I’ll just charge it.”  For many of our parents or grandparents, there was a time when instant gratification wasn’t even a thing.  Gratification was more about the receipt of the blessing rather than the timing of it.  With respect to what you’d like to have and what you’d like to have now, consider, it’s better to go to bed wanting than owing.
  2. It’s about When and How Much. Ruminating on regret may lead to helplessness, depression, low self-esteem and may create the perfect environment for anxiety. (Just ask me. I can tell you all about it.) The two most common financial regrets I’ve heard from folks in their later years:  I wish I’d saved more, and I wished I’d started earlier.  You may recall hearing the following from your elders when you were your children’s or grandchildren’s age, “You need to be saving your money.” (Side note: I said that twice yesterday to two different kids.) Why do you think older folks are always saying that?  Because they know the importance of being good stewards of their money, and more likely, they were young once.  Older folks were raised in a completely different world than my teenagers and young 20 somethings currently are. Our parents and great grandparents spoke from experience, from scars, or perhaps from the appreciation of making wise decisions. If you’re reading this article, it’s almost a guarantee that your elders didn’t take financial (or life) advice from an 18-year-old social media influencer peddling purses or fat-loss routines. (Don’t get me started.) As one client told me, “Have the discipline to start saving now for the life you want to live in the future. Your future self will thank you.”
  3. List for Living. In 2023, there was an article published by The Legacy Project: Lessons for Living from the Wisest Americans. Sweet Ms. Verna, 91, wrote a List for Living for her great grandchildren. I’m quite confident none of us reading this article have attained 91, so let us marinate on a few points of her wisdom, shall we?

a) So many things in the world have changed since the time of my grandparents and parents and the earlier times of my own life, and I know that there will be lots of changes in your lifetime too.

b) I hope you will be a positive thinker, not negative or cynical; look for the good in people and things, and fill your life with love, kindness, and thoughtfulness for others.

c) Most important is to know God as you go into the future. I would hope that you will know the peace and joy and courage that comes from following a life of love and service – the peace that passes all understanding.

d) Your real success in life lies is the kind of person you become, not with how famous or wealthy you are, so my most sincere wish is for you to live the wholesome life that will lead you to make good choices along the way… You can do it.

It stands to reason the period you grew up in has a lot to do with how you filter life experiences.  My grandparents were teenagers in the Roaring Twenties and were 20 somethings during the bleak years of the 30s. As many have learned – though it’s possible some reading this may have had little exposure to The Great Depression – the 30s were a decade of economic volatility, if not misery. The unemployment rate (defined as the percentage of people in the labor force who do not have a job but are actively looking for one) was in the mid-teens for nearly half the decade and in the low to mid 20s for the rest!  Without a doubt, my grandparents faced an economic reality that I can only imagine, but not fully appreciate.  But theirs was an experience they wanted their children and their grandchildren to learn from. And that brings us back to that hot day in June…

Pop said he needed my help in the garden and that I should spend the night with him and Grandmom. Sure! I get to stay up and watch the news, talk sports with Pop, eat home-made chocolate pie? The garden? Okay, whatever. I’m sure I was lukewarm to that part of the itinerary. What, throw a little dirt around? Look for crickets? Whatever, it’ll be fun. (Yeah, I know. I’m smirking as I type these words.) At 5:00 the next morning, he woke me up. He was already in his overalls, shaven, and with biscuits in the skillet. (skillet: n. a frying pan.) I stumbled into the kitchen to see Pop stirring the eggs in the other skillet that had just been used for the patty sausage. While I’m struggling to put the strawberry preserves on my biscuit, Pop was opening the screen door to the yard with his red handkerchief in his back pocket. We were in that garden for two hours and both nearly dying of thirst, exhaustion, and hunger. (smirking again) Pop hadn’t broken a sweat. His day had barely begun. And the only words he said to me up to that point were, “Pick the ones that are turning purple and put them in the bucket. When the bucket’s full, take them to your Grandmom.” “Yes sir!” was the expected and only acceptable response in the moment. Though, what I wanted to say was, “I can’t do this anymore. My back hurts. It’s too hot. When do we eat lunch? What time is it? What just bit me?! When is my mom coming to get me?” But alas, it was just me, Pop’s silence, and the unmistakable sound of cicadas in the June heat. Halfway into that bucket, Pop came up to me and said, “Why don’t you go to the porch up yonder and help your Grandmom snap peas.” “Yes sir!” was my enthusiastic reply. He knew. And I knew. I was not accustomed to this kind of work. The only kind of work that my grandfather knew. Hard work. Necessary work. Work to be grateful for. And he handled it like Pop would. With understanding, but only after the weight of the experience settled upon my sunbaked neck. (I’m being melodramatic you say? You get out there in the garden for two hours, then. You’ll see.  Now you’re smirking.)  A lesson from one generation to another. Providing can be difficult, uncertain, and uncomfortable. But it has to be done. And it’s a lesson that has to be passed down.

You’ve learned lessons along the way.

Which ones are you passing down to those coming up behind you?

On this day, a way of life was observed, and lessons were learned that have been passed down to my boys these many years later. And I’d give anything to see that red handkerchief in the garden again. I believe one day I will. And I’ll thank him for what he taught me that day.

To further discuss this article or to learn more about how CapSouth Wealth Management can help, click here to visit our website, or call 800.929.1001 to schedule an appointment to speak with an advisor.

Investment advisory services are offered through CapSouth Partners, Inc, dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. CapSouth does not offer tax, accounting, or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences. This information has been prepared solely for informational purposes, is general in nature and is not intended as specific advice.

  1. (Americans are Carrying Record Household Debt into 2024, Market Watch, Jan 24, 2024)

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