In tandem with finalizing CDD ‘beneficial ownership’ rule, US government releases proposed rules

Even as the US Treasury issues final rules requiring banks to capture the “beneficial owners” of companies, it still needs Congress to button up outstanding vulnerabilities that can leave the door open to a broad swath of criminals to gain access to the international financial system.

The finalization last week of the rule from the Financial Crimes Enforcement Network (FinCEN) has sent shockwaves through the financial crime compliance space, with experts weighing the pros and cons of the initiative, even as anti-money laundering (AML) teams wrestle with fresh implementation challenges and law enforcement readies for a flood of new intelligence. To read an ACFCS analysis of the new rule, please click here.

Even so, ever since the rule’s genesis four years ago as an advanced notice of proposed rulemaking, it has had a persistent vulnerability because whatever information the bank collects on these real people – including individuals with “significant responsibility” and control over a company or owning 25 percent – institutions have had no way to verify the information.

The root of the issue: The United States does not require company formation agents to collect this information, nor does the government collect the information in a centralized database, similar to initiatives already underway in the United Kingdom and Europe. With such a system, a bank can double check what people tell them to screen for inconsistencies.


That could change with a bevy of companion legislative proposals that dropped alongside the beneficial ownership rule, including requiring companies to know and report their true owners at company creation and close a loophole that allowed certain foreign-owned, single-member LLCs to evade IRS registration requirements, among other initiatives.

What is still unclear, however, is if Congress can put differences aside to bring these legislative solutions to reality. Similar bills that would have required company formation agencies, and companies themselves, to capture this information or put it in a central database have died on the committee vine.

Here is a rundown of some of the proposals the administration is proffering to crack open corporate secrecy in its bid to make the country more resistant to money launderers, fraudsters, tax evaders, terrorists and their financiers and transnational organized criminal groups of all stripes:

  • Closing a Loophole that Enables Foreigners to Hide Behind Anonymous Entities Formed in the United States: The rule will require foreign-owned entities that are “disregarded entities” for tax purposes, including foreign-owned single-member limited liability companies (LLCs), to obtain an employer identification number (EIN) with the IRS.
  • The Administration is releasing draft legislation that would: Increase transparency into the “beneficial ownership” of companies formed in the United States by requiring that companies know and report their true owners and provide additional law enforcement tools to combat corruption and money laundering. The legislation would authorize the Treasury Department to require that legal entities formed or qualified to do business within the United States file this information with the Treasury Department, and face penalties for failure to comply.
  • New legislation to strengthen the country’s ability to fight transnational corruption: The Department of Justice is sending to Congress draft legislation to enhance and strengthen our efforts to combat transnational corruption.  This legislation would enhance law enforcement’s ability to prevent bad actors from concealing and laundering illegal proceeds of transnational corruption.  It would also allow U.S. prosecutors to more effectively pursue kleptocracy cases and prosecute money laundering as part of foreign corruption, and reinforce our role in the international community as a model for others in anti-corruption matters.
  • A call for long-overdue Senate action on tax treaties:  Eight tax treaties with other countries have been awaiting Senate approval for several years – including amendments to our existing treaties with Switzerland and Luxembourg that would enable U.S. law enforcement in the United States to obtain information about financial accounts in those countries.
  • “Reciprocal FATCA” legislation to strengthen our ability to work with other countries to fight tax evasion:  Congress also must act to strengthen the United States’ hand in pressing other countries to improve transparency by ensuring that we live up to our end of the bargain.  The President has proposed providing full “reciprocity” under the Foreign Account Tax Compliance Act (FATCA) in the last three budgets he has submitted to Congress.