Money launderers and criminals have used opaque corporate structures to hide and move ill-gotten gains for years. Such structures are also a haven for corrupt governments, public officials, companies, and individuals. The Financial Action Task Force (FATF) has identified ownership transparency as critical in the global efforts to combat money laundering and terrorist financing.
For many years, the US has lagged behind the EU, the UK, and many other countries in requiring clear ownership disclosure. In its evaluation report of the US issued in 2016, FATF identified the absence of beneficial ownership reporting requirements as a significant flaw in the United States’ AML/CFT regime.
The journey to full ownership transparency in the US has been slow and circuitous – and it continues.
In the US, corporate formations are done at the state level. Each state sets its requirements for what ownership information must be reported when forming an entity and through any required periodic reporting. Some states require full ownership disclosure and make the information available to the public. Some states require no ownership disclosure.
As the debate about transparency has unfolded, some states and trade groups have complained about the burden of requiring reporting of beneficial ownership information and have raised privacy concerns about who may access any reported data. Transparency, anti-corruption advocates, and others have complained that the point of requiring reporting is to enhance transparency.
After several prior failed attempts, in early 2021, the US Congress adopted the Corporate Transparency Act (CTA) as part of the Anti-Money Laundering Act of 2020. The CTA “establishes uniform beneficial ownership information reporting requirements for certain types of corporations, limited liability companies, and similar entities created in or registered to do business in the United States.”
The Act requires the Financial Crimes Enforcement Network (FinCEN) to issue implementing regulations and make various reports to Congress. The regulations require several areas, including establishing standards for reporting beneficial ownership information (BOI), building a beneficial ownership registry, and creating access protocols.
In late 2021 FinCEN issued a proposed regulation on reporting BOI. In September 2022, the final reporting rule was published. The effective date of the reporting requirements is January 1, 2024. The reported information will be housed in a registry constructed by FinCEN. The reporting regulation has again raised concerns from those concerned about the burdens of reporting and those concerned about maximizing ownership transparency.
In December 2022, FinCEN circulated a proposed regulation on access to the reported BOI. That proposal limits access to BOI to federal agencies working on national security, intelligence, and law enforcement activities; state, local, and tribal law enforcement agencies with court authorization; financial institutions with customer consent; and several other classes of users.
The proposal has been met with significant pushback. In February 2023, the American Bankers Association (ABA) issued a letter stating that it called the BOI proposal "fatally flawed.” The ABA noted that the proposed access rule “creates a framework in which banks’ access to the registry will be so limited that it will effectively be useless, resulting in a dual reporting regime for both banks and small businesses.” It urged FinCEN to withdraw the proposal and work with the financial services industry and small businesses to develop a new proposal more aligned with the CTA.
In addition, a bipartisan group of US senators recently urged FinCEN to give banks increased access to the registry so they can leverage the BOI in their AML and sanctions programs. The senators urged FinCEN to revise the proposed rule because it “deviates from congressional intent by inappropriately restricting financial institution access to and use of (beneficial ownership information, or BOI).”
The issues raised by the ABA, the senators, and others show the challenges to implementing transparency in the US. FinCEN has yet to respond directly to the issues the ABA or the senators raised.
Aligning US BOI practices with FATF standards is still clearly a national policy goal. In March 2023, the US co-hosted the Summit for Democracy. The 18 participating nations agreed to a Commitment on Beneficial Ownership and Misuse of Legal Persons. The Commitment. One statement in the Commitment, “[t]o ensure efficient access to beneficial ownership information, we commit to establish and maintain a beneficial ownership registry or an alternative mechanism, consistent with the revised FATF standard on transparency and beneficial ownership of legal persons.”
Whether the US can complete the long journey to ownership transparency is still being determined. Stay tuned; it is unfolding in front of us.