Anonymous corporate structures designed to move and hide illicit wealth have long plagued the fight against money-laundering and counter-terrorist financing. Under the Bank Secrecy Act (BSA), enacted in 1970, financial institutions are required to report certain transaction activities and subjects to U.S. government agencies to assist in law enforcement investigations. Though the BSA has seen many revisions and amendments through the years, including the significant changes made by the USA PATRIOT Act in 2001, the Anti-Money Laundering Act of 2020 (AMLA) is the most “comprehensive reform and modernization” since the BSA’s inception.
The U.S. regime has not conformed to long-standing international recommendations on AML/CFT programs with respect to beneficial ownership. The AMLA, through the Corporate Transparency Act (“CTA”), seeks to remedy the absence of corporate beneficial ownership reporting requirements at the national level by directing FinCEN to establish and maintain a beneficial ownership registry. The CTA will require reporting companies to submit a report to FinCEN that specifically identifies each beneficial owner.
The CTA defines a reporting company as a corporation or LLC or similar U.S. entities as well as foreign entities that register to conduct business in the U.S. There are exempted organizations not covered by the Act’s reporting requirements including:
- Entities already required to disclose beneficial ownership information publicly or to federal regulators including but not limited to:
- publicly traded companies
- insurance companies
- registered money services businesses
- investment companies and advisers
- Entities that employ more than 20 full-time employees and have more than $5 million in gross revenues
So, who or what is a beneficial owner? A beneficial owner is defined as any individual who (a) exercises substantial control over an entity or (b) owns or controls 25 percent or more of the ownership interests of an entity. Excluded from this definition are employees and agents. However, it is important to distinguish this definition from the FinCEN’s CDD RULE wherein the definition of beneficial owner includes executive officers or managers. The Treasury will likely issue further guidance around reporting requirements and tighten up beneficial owner definitions to avoid confusion.
It is important to understand that the beneficial owner repository will be maintained by FinCEN and will be considered a private list of names, available only to the following:
- Federal law enforcement, intelligence, and national security agencies
- State, local, and Tribal law enforcement agencies
- Foreign law enforcement agencies
- Subject to certain limitations, federal functional and “other appropriate” regulators
- Financial institutions with the consent of their customer
Collecting and monitoring verified customer information is a formidable challenge. Various departments within an organization need to be involved to detect and identify red flags – straining resources.
Technology exists today that not only consolidates diverse data streams but leverages analytics and customer data management tools to enable organizations to operate more efficiently across departments.
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