US Shell Companies: Almost two years after the US announced a game changer bill in its 2021 National Defense Authorization Act that would require companies to identify their beneficial owners when they register in the US, the US Treasury’s Financial Crimes Enforcement Network (FinCEN) finally issued the final implementing rule on how ownership data from companies operating in the United States will be collected.
We were almost starting to despair truth be told, as this historic step was eagerly awaited by law enforcement, compliance officers, and anti-corruption groups that have long campaigned for more transparent measures to trace illicit money flows.
The US has long been criticized for being one of the most prolific creator of shell companies in the world, and was recently ranked as the world’s biggest financial secrecy heaven by the Tax Justice Network.
In 2020, the ICIJ published the FinCEN Files, exposing a staggering $2 trillion worth of suspicious transactions flowing through the global financial system that US financial institutions did little to stop.
Criminal actors, including oligarchs, kleptocrats, fraudsters, drug traffickers, and human traffickers, have long been able to use anonymous shell and front companies in the US to hide their illicit proceeds.
Such corporate structures, which are anonymous in nature, enable illicit actors to obfuscate their identities and launder their ill-gotten gains through the US financial system, US real estate, and other high-ticket purchase items.
The US has recognized their existence as a threat to US national security, and its economic prosperity.
Currently very few States, require legal entities to disclose information about their beneficial owners—the individuals who actually own or control an entity—or individuals who take the steps to create an entity.
FinCEN’s final rule (which is over 300 pages long and will take some time for us to dissect in more detail) will require most corporations all over the United States, to report information about their beneficial owners to FinCEN.
The rule becomes effective on January 1, 2024.
Reporting companies created or registered before January 1, 2024, will have one year (until January 1, 2025) to file their initial reports, while reporting companies created or registered after January 1, 2024, will have 30 days after creation or registration to file their initial reports.
Once the initial report has been filed, both existing and new reporting companies will have to file updates within 30 days of a change in their beneficial ownership information.
Such step addresses deficiencies in the US anti-money laundering regime identified by the Financial Action Task Force (FATF) —and delivers on commitments made by the United States ahead of the December 2021 Summit for Democracy and in the first-ever U.S. Strategy on Countering Corruption.
US efforts to collect Beneficial Ownership Information will join the growing international consensus to enhance beneficial ownership transparency, and will hopefully inspire similar efforts by other countries.
At least 30 countries have already implemented some form of central register of beneficial ownership information, and more than 100 countries, including the United States, have committed to implementing beneficial ownership transparency reforms.
The reporting rule is one of three rulemakings planned to implement the Corporate Transparency Act (CTA). FinCEN will engage in additional rulemakings to: (1) establish rules for who may access beneficial ownership information, for what purposes, and what safeguards will be required to ensure that the information is secured and protected; and (2) revise FinCEN’s customer due diligence rule. In addition, FinCEN continues to develop the infrastructure to administer these requirements, including the information technology system that will be used to store beneficial ownership information in accordance with the strict security and confidentiality requirements of the CTA.
-More reporting on this to come as we analyze the document, and as FinCEN issues its additional rules.