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Accounting Today
Accounting Today
Southeast’s fastest growing hubs as well as Bengaluru, India
Following our recent Financial Services Group roundtable webinar, this article explores how financial institutions can update their Bank Secrecy Act (BSA) and anti-money laundering (AML) models in light of regulatory changes and emerging risks.
Keeping up with changing regulations can be a challenge with limited resources and staffing. Community banks and credit unions are being asked to do more with less. Examiners expect robust compliance programs, but many institutions are operating with the same staffing levels they had a decade ago. Gaps in oversight and stale risk assessments are frustrating for both sides of the audit table.
Examiners are no longer satisfied with generic, check-the-box style risk assessments. They want data that is quantified, contextualized, and institution-specific. That means clearly stating what your institution does (and doesn’t do), assigning risk accordingly, and explaining how you’re mitigating it. If your institution doesn’t process international wires, say so. If you do, show how you’re managing the risk.
In June 2025, FinCEN issued its first orders under Section 2313a added under the Fentanyl Sanctions Act, naming three Mexico-based financial institutions for laundering money tied to fentanyl trafficking. These orders ban financial institutions from transmitting funds with CIBanco, Intercam, and Vector, including crypto-related transfers, and will remain in effect indefinitely.
The action follows the Trump administration’s designation of cartels as terrorist organizations. U.S. institutions are expected to update compliance systems, block prohibited transactions, and prepare for substantial penalties in case of violations. This development adds urgency to the need for institutions to identify and manage exposure to cartel-linked financial activity.
So, how can community banks, credit unions, and financial institutions strengthen their BSA/AML compliance programs to meet examiner expectations?
Suspicious Activity Reports (SARs) are a cornerstone of AML compliance, and the narrative section is where your institution tells the story. Examiners, who are compliance professionals, not bankers, rely on these narratives to understand the nature and context of the suspicious activity. Poorly written reports can delay investigations, invite regulatory criticism, and undermine your institution’s credibility. Well-crafted narratives, on the other hand, can trigger major investigations, reveal financial crime trends, and support national security efforts.
To write an effective SAR narrative, use a Bottom Line Up Front (BLUF) approach, where the first two sentences explain why the SAR is being filed. Include who, what, when, where, why, and how, using chronological order and FinCEN keywords. Complete every field, even the ones without asterisks because details matter. Remember, examiners want to understand the nature and context of the activity being reported. The more complete and clear your narrative, the more effective your SAR will be.
Poorly tuned detection models generate excessive alerts, leading to alert fatigue and missed risks. Striking the right balance is key. Too few alerts and you miss threats, while too many overwhelm staff and dilute focus. To improve efficiency and gain leadership buy-in, institutions should regularly tune their models, communicate changes transparently, and prioritize actionable alerts.
Unacknowledged alerts can also resurface during audits, catching leadership off guard. To prevent this, quality control and oversight must be proactive, not reactive. As customer bases grow, especially with high-risk profiles, staffing levels and procedures must scale accordingly. Institutions should clearly document why certain customers are classified as high-risk and adapt workflows in tandem with risk exposure.
Interested in assessing your BSA/AML system? Check out our related article.
CIP, a subset of Know Your Customer (KYC) procedures, is a federally mandated process requiring financial institutions to verify the identity of individuals and entities opening new accounts. Designed to prevent money laundering, terrorist financing, fraud, and other financial crimes, CIP involves collecting and verifying customer information, maintaining detailed records, and screening applicants against government watchlists.
FinCEN, in coordination with other federal agencies, has issued an exemption to the CIP Rule allowing institutions to collect only the last four digits of a Taxpayer Identification Number (TIN) and verify the full number through a trusted third-party source. This exemption is optional and does not override IRS requirements. For accounts subject to IRS reporting, such as those involving interest payments, backup withholding, or requiring Form W-9 or W-8BEN, institutions must still collect the full TIN directly from the customer.
CIP procedures should clearly differentiate between account types and include written protocols to comply with both FinCEN and IRS standards. If your institution partners with an ID verification provider, it’s important to train staff thoroughly, and implement ongoing audits of the onboarding process. Continuous education and awareness are key to managing risk and maintaining compliance.
Regulatory scrutiny around fintech partnerships is intensifying, and financial institutions must be prepared to meet heightened expectations. Before onboarding a fintech partner, banks should verify fintech licenses, monitor data privacy, and treat fintechs as part of their compliance program. This means including them in your risk assessments, conducting vendor due diligence, and reviewing how financial transactions will be managed.
Compliance best practices for banking partners include:
Not all fintechs are alike. Some offer deposit services, while others focus on small-dollar loans or infrastructure. Risk assessments should reflect these differences. Controls on the fintech’s side, such as cash flow management and licensing, can provide additional assurance. Before going live, understand how accounts will be used and make sure the flow of funds is clearly documented.
Wondering whether fintechs need BSA/AML model validation? Read our related article.
When partnering with fintechs, institutions should:
As cryptocurrency adoption grows, financial institutions must adapt their compliance frameworks to monitor crypto-related activity effectively. The foundation of this effort begins with CDD, a regulatory requirement under the BSA.
Before you can detect suspicious crypto activity, you must first understand what “normal” looks like for your institution. This includes identifying whether customers are engaged in crypto mining, using exchanges, generating revenue from digital assets, or funding these activities through specific channels.
Your procedures should address relevant scenarios and follow your institution’s established compliance standards.
To maintain regulatory alignment, financial institutions must function strictly within their approved compliance protocols. This means adhering to written policies and procedures, using only authorized tools and models, and maintaining thorough documentation and audit trails.
Institutions should avoid ad hoc or unvetted practices and instead implement robust quality control checks, interdepartmental communication, and ongoing training to support a culture of compliance and accountability.
Cryptominers can be high-risk, but they shouldn’t be automatically rejected. Institutions should:
Institutions should regularly revisit cryptominer relationships to stay on top of changing regulatory expectations and operational risk profiles.
Whether you’re preparing for an audit, onboarding a fintech partner, or tuning your AML models, Elliott Davis offers tailored consulting and audit services to help you meet regulatory expectations. Let’s make sure your story is one examiners want to read.
Watch the full webinar replay below or contact our team today to start the conversation.
The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.
Securing capital is just the beginning. The real challenge for real estate firms starts after the check clears. This is when investors expect answers, lenders require reports, and partners demand structure.
And that’s where many firms fall short.
Too many real estate companies hit this milestone without the right internal systems to support it—finance teams are under-resourced, reporting tools are outdated or nonexistent, and controls are loosely defined, if they exist at all. What was once a promising project becomes a hectic scramble to meet basic expectations.
This article, the first in our Real Estate Capital Cycle series, explores what it takes to be capital-ready, starting with people, processes, and internal controls.
Real estate firms often rely on outdated practices that were suitable in previous cycles. However, as capital moves back into real estate, there is growing pressure for operational excellence.
Scattered spreadsheets, undocumented workflows, and an over-reliance on a single controller now raise red flags during due diligence. Lenders and institutional investors want Generally Accepted Accounting Principles (GAAP) compliant reports and partners expect real-time project visibility. Firms with legacy accounting systems are stuck trying to backfill a financial story they should have been telling all along leading to gaps between what capital demands and the firm can provide.
These gaps have serious consequences. We’ve seen delayed deals, dropped confidence, and valuation concerns, which all trace back to a lack of organizational readiness.
No one expects a real estate firm to operate like a Fortune 500 company. But with millions in investor capital at stake, firms find that the standard for acceptable financial reporting quickly rises. Investors want financial clarity, risk-mitigating controls, and timely reports they can trust.
Yet too many firms miss the mark. Material weaknesses in internal controls are projected to rise by more than 20% in fiscal year-end 2024. In fact, over 140 public companies had to restate financials last year after informing investors that earlier reports were inaccurate.
One developer we worked with learned this the hard way. Despite securing tens of millions in outside capital, investor funding was paused when reporting failed to meet GAAP standards. They had the vision and the momentum, but not the structure to back it up. The Elliott Davis team stepped in, trained their staff, and advised in developing investor-ready reporting protocols to restore trust and move the deal forward.
In this capital climate, confidence is currency. The firms that win aren’t always the ones with the flashiest projects, they’re the ones that prove they can deliver, transparently and consistently.
Raising capital is one thing. Proving you’re ready to deploy is another. While many firms focus on development plans and pitch decks, investors want structure, reliability, and financial maturity.
Even with a strong vision, if a firm’s accounting is lacking or can’t explain how investor dollars are being used, trust breaks down.
The good news is that a capital-ready firm doesn’t need to be big. It just needs to be built right. That starts with the basics: clear roles, documented procedures, and airtight month-end closes. Too often, teams are stretched too thin or using outdated systems that weren’t designed to scale.
One privately-owned real estate startup came to Elliott Davis with these exact pain points. Initially engaged for basic accounting, they quickly saw the value of our expanded service solutions. Within a month, we implemented real-time dashboards, synced payroll and banking feeds, and helped leadership focus on what they do best—strategic growth.
Being capital-ready means investors don’t just see what you’ve built, they see you’re equipped to grow.
When institutional investors or strategic partners enter the picture, expectations change—fast. Gone are the days of loose documentation and handshake approvals.
At the institutional investors stage, monthly close becomes non-negotiable. Cash controls must be tightened. Investors want audit trails, defined roles, and confidence that funds are being handled with precision.
Internal teams that haven’t operated at this level before can encounter problems. If your team has never tracked internal rate of return (IRR) across entities or produced investor-grade reports, you might need help.
That’s where advisory support can step in to train teams, help you build processes, and align internal operations with investor requirements.
Growth depends on trust. Trust means transparent operations, accurate reporting, and a team ready to meet investor expectations. With a solid accounting foundation in place, your organization is better positioned to protect valuation and keep deals on track.
Don’t wait until you're in front of investors. Contact Elliott Davis today.
The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.
Once you have achieved organizational readiness, it is imperative to properly structure the entity profile required to execute your business plan. In future articles, we will discuss potential investment sleeves available to maximize specific investor returns.
Before considering tailored alternatives to facilitate investor objections, a Sponsor must first determine whether they are raising capital for a diversified real estate fund (Fund) or a single property syndication (Syndication). At their base level, both a Fund and Syndication are typically taxable as partnerships to optimize pass-through taxation, minimize entity level taxes, and provide flexibility in allocations. However, there are a number of differences to consider when evaluating the alternatives.
Funds are typically structured as a single Limited Partnership (LP) or Limited Liability Company (LLC) taxed as a partnership, with the fund sponsor acting as either the General Partner or Managing Member. To provide limited liability protection, single-member limited liability companies (SMLLC) are established underneath the Fund to acquire the target assets.
Syndication may similarly be structured as an LP or LLC but may hold the project asset directly instead of in a separate SMLLC, allowing simplified registration and filing requirements with Secretaries of State. Additionally, holding assets directly through an LP may provide tax benefits in states with nuanced tax rules that treat LPs and LLCs differently.
Sponsors targeting significant amounts of tax-exempt capital may consider a Real Estate Investment Trust (REIT) structure to eliminate Unrelated Business Taxable Income (UBTI) exposure. To acquire the tax benefits of an REIT, specific asset and income tests are required (beyond the scope of this article). Future articles in our investment sleeve series will explore this option in more detail for investors seeking UBTI-free alternatives.
As an alternative structure, some projects may make sense to legally hold title via a Tenancy in Common (TIC) agreement, which allows multiple individuals or entities to co-own a property without establishing a separate business entity. The main benefit of a TIC agreement is to preserve the opportunity for a §1031 like-kind exchange or facilitate the replacement of an exchange for co-owners.
When pursuing a TIC arrangement, careful consideration should be given to maintain simple co-ownership status and not rise to the level of a business entity. The IRS has provided a safe harbor for TICs under Revenue Procedure 2002-22, which includes a limited number of co-owners, unanimous approval requirements on certain items, proportionate sharing of profits and losses, and restrictions on business activities.
Funds have larger capital needs due to the acquisition of multiple projects. As a result, there may be a longer fundraising period to achieve the capital required to launch. Target investors may be limited to institutional investors, family offices, and high-net-worth individuals, who may require more due diligence on the Fund’s investment strategy and Sponsor history. Capital commitments are typically agreed upon during fundraising, but capital calls are less likely to occur until specific investments are identified and funding is needed for acquisition or ongoing project costs.
Syndications only require capital for a single project, so the fundraising period can be compressed. As the total capital requirement is significantly less than that of a Fund, the target investor pool may be opened to other accredited investors, such as friends and family. Capital is typically contributed upfront, providing greater certainty in total commitments.
Funds aim to acquire multiple properties to reduce portfolio risk through diversification. To provide a consistent investor return, Funds typically target core assets across multiple states, providing a steady annual return with predictable cash flows. Funds may also incorporate a number of value-add or development opportunities to supplement returns on core assets with higher deferred potential, though the overall purpose generally remains a consistent annual return.
Due to the volume of assets and consistent returns on core assets, closed-end Funds typically target a longer-term horizon for liquidation than a single Syndication. Some Funds, however, are open-ended with no definitive timeline for liquidation.
As Syndications target a single asset, they typically focus on value-add or development projects that may not provide a steady annual return but allow for the opportunity of a higher return on exit. Since the goal of a Syndication is often the disposition of the asset for a large multiple on invested capital, the project timeline is generally shorter than that of a Fund but may provide less cash flow to investors throughout the project. Depending on investor appetite, Syndications may also provide more flexibility to defer gains via a §1031 exchange, as a smaller investor group may make it easier to receive approval for the entity to continue the investment.
Selecting the correct investment vehicle may have significant implications in a Sponsor’s ability to raise capital, as investors seek opportunities that are in sync with their ultimate risk profile and investment timeline. While upper tier investment vehicles play a part in achieving investors’ desired results, the asset level structuring is perhaps the most important choice a Sponsor will make, as it ultimately drives the economics of the deal.
Elliott Davis is here to help you evaluate the alternatives and develop a plan to achieve your ultimate objectives. Contact us today.
The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.
