The U.S. Is Not Alone in Collecting Beneficial Ownership Information from Business Entities
January 1, 2021, Congress passed the Corporate Transparency Act (“CTA”) as part of the annual National Defense Authorization Act.[1] The CTA requires tens of millions of private corporations, limited liability companies, and other business entities formed under state or tribal law to report to the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of the Treasury certain information about each “beneficial owner” of the entity, as defined in the CTA and FinCEN’s implementing regulations.[2] The requirement to report such beneficial ownership information (“BOI”) only took effect on January 1, 2024, but there has been much hand-wringing about BOI reporting ever since the CTA was passed three years ago. However, the United States is not alone in requiring companies to report such information to the government; in fact, the U.S. is, if anything, somewhat late to the party.
Congress passed the CTA based on its “sense” that a “clear, federal standard for incorporation practices” is required to prevent “malign actors” from concealing their ownership of business entities to engage in money laundering, as well as to counter the financing of terrorism, because “most or all States do not require information about the beneficial owners of the” business entities formed under state law.[3] The U.S. did not, however, come to this conclusion in a vacuum.
The U.S. is a member of the Financial Action Task Force (“FATF”), which is an independent inter-governmental body that develops and promotes policies to protect the international financial system against money laundering and terrorist financing.[4] As far back as July of 2006, the FATF “issued a report that criticized the United States for failing to comply with a FATF standard on the need to collect beneficial ownership information and urged the United States to correct this deficiency by July 2008.”[5] Ten years later, when the U.S. still had not implemented a BOI reporting system, the FATF issued another report concluding that “lack of timely access to adequate, accurate and current beneficial ownership (BO) information remains one of the fundamental gaps in the U.S. context” and, “overall, the measures to prevent the misuse of legal persons are inadequate. The U.S. legal framework has serious gaps that impede effectiveness in this area.”[6] The United States’ adoption of a BOI transparency system was considered especially important, because the U.S. is the largest economy in the international financial system and thus “bears particular responsibility to address [its] own regulatory deficiencies” in its anti-money laundering and countering the financing of terrorism regime.[7]
A prior (2019), unenacted version of the CTA cited the FATF’s 2016 mutual evaluation report among the congressional findings supporting the adoption of a BOI reporting system in the U.S.[8] And when Congress finally did pass the CTA in 2021, it specifically recognized that federal legislation providing for the collection of BOI was needed to, among other things, “bring the United States into compliance with international anti-money laundering and countering the financing of terrorism standards.”[9] In adopting its regulations implementing the CTA, FinCEN also noted that “[m]any countries, including the United Kingdom and all member states of the European Union, have incorporated elements derived from these [international] standards into their domestic legal or regulatory frameworks.”[10]
At the time that FinCEN adopted the implementing regulations on September 30, 2022, “[a]t least 30 countries ha[d] already implemented some form of central register of beneficial ownership information, and more than 100 countries, including the United States, ha[d] committed to implementing beneficial ownership transparency reforms.”[11] The resource that FinCEN cited for that information now shows that 70 countries have a live register, 25 countries are in the process of implementing a register, and 49 countries have at least committed to beneficial ownership transparency.[12] Some of the countries with a live register, such as the United Kingdom,[13] France,[14] and Spain,[15] appear to use a 25 percent threshold to determine beneficial ownership, as the U.S. now does.[16]
In sum, while the BOI reporting requirements may, for the time being, seem strange in this country, the move to achieving transparency in corporate ownership and control is just part of a broader international framework to combat money laundering and terrorism financing that has been moving in this direction for decades.
[1] National Defense Authorization Act, Pub. L. No. 116-283, §§ 6401 to 6403, 134 Stat. 3388 (2021). The CTA is codified at 31 U.S.C. § 5336.
[2] See 31 U.S.C. § 5336(b); 31 C.F.R. § 1010.380(a), (b).
[3] Pub. L. No. 116-283, § 6402(2)-(5).
[4] See FATF, Who We Are: FATF Members.
[5] H.R. 2513, 116th Cong. § 2(6) (congressional finding in an unenacted bill that was an earlier version of the CTA); see also FATF, International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, at 22 (updated Nov. 2023) (FATF Recommendation 24: “Countries should ensure that there is adequate, accurate and up-to-date information on the beneficial ownership and control of legal persons that can be obtained or accessed rapidly and efficiently by competent authorities, through either a register of beneficial ownership or an alternative mechanism.”); FinCEN, Beneficial Ownership Information Reporting Requirements, 87 FR 59,498, 59,506 (Sept. 30, 2022) [hereinafter the “Adopting Release”] (“[T]he global community has worked to establish a set of mutual standards to enhance beneficial ownership transparency across jurisdictions.”).
[6] FATF, Anti-Money Laundering and Counter-Terrorist Financing Measures: United States Mutual Evaluation Report, at 4, 10 (Dec. 2016); see also id. at 20 (noting that the United States’ “lack of beneficial ownership (BO) requirements was identified in the previous mutual evaluation as a serious deficiency”).
[7] See FinCEN, Adopting Release, supra note 5 at 59,506 (quoting The White House, United States Strategy on Countering Corruption, at 11 (Dec. 2021)).
[8] H.R. 2513, 116th Cong. § 2(6) (“In December 2016, FATF issued another evaluation of the United States, which found that little progress has been made over the last ten years to address this problem. It identified the ‘lack of timely access to adequate, accurate and current beneficial ownership information’ as a fundamental gap in United
States efforts to combat money laundering and terrorist finance.”).
[9] Pub. L. No. 116-283, § 6402(5)(E).
[10] FinCEN, Adopting Release, supra note 5 at 59,506.
[11] Id. at 59,499 (citing Open Ownership, Open Ownership Map: Worldwide Action on Beneficial Ownership Transparency).
[12] Open Ownership Map, supra note 10.
[13] Open Ownership, United Kingdom of Great Britain and Northern Ireland.
[16] See 31 U.S.C. § 5336(a)(3)(A)(ii); 31 C.F.R. § 1010.380(d).