U.S. bills for beneficial ownership a step in the right direction
The decision by U.S. lawmakers to move ahead with bills to toughen corporate ownership laws for shell corporations will help strengthen anti-money laundering policies and combat the financing of terrorism.
The key will be to see which of the two similar bills will be able to get past both the Congress and U.S. Senate. The good news is that both bills are bipartisan. They will go a long way toward strengthening the beneficial ownership rules imposed on financial institutions by the Financial Crimes Enforcement Network (FinCEN).
A bipartisan group of U.S. senators recently announced a bill to require shell corporations to disclose the names of their true owners. The senators said their bill (Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (ILLICIT CASH) Act) would require shell companies to disclose their ultimate – or real owners – to the U.S. Treasury Department’s FinCEN branch.
The move comes as Congressional Rep. Carolyn Maloney (D-NY) said the Financial Services Committee would consider a similar bipartisan bill called the Corporate Transparency Act of 2019.
These bills – if passed – will improve transparency, reduce the burden on financial institutions when verifying corporate ownership and will be another tool to help fight financial crimes.
Impact of Bills
Currently, it is relatively easy for drug dealers, human traffickers and other criminals to hide behind shell corporations because most corporations are registered at the state level where there are no beneficial ownership controls.
Representatives from both sides of Congress are lining up together to keep dirty money from being legitimized on U.S. soil.
“Criminals are taking advantage of state laws by establishing firms – often without a physical presence or business activity – to access our banking system,” said Congressman Peter King (R-NY), another sponsor of the Congressional bill.
“The Corporate Transparency Act targets this problem by requiring a company that has the characteristics of a shell corporation to disclose who benefits from the company’s operations and makes that information available only to law enforcement. This simple requirement would enable law enforcement to stop money from flowing across our borders to terrorist organizations.”
New Jersey Democrat Tom Malinowski agreed to allow his name to stand on the bill saying, “Dictators and kleptocrats … hide their stolen wealth in shell companies and real estate on American soil.”
“Our lax rules have enabled these corrupt foreign actors to escape accountability and even to buy political influence in our country. Requiring companies to disclose their beneficial ownership is one of the strongest steps we can take to advance democracy abroad and protect it at home.”
Current FinCEN requirements
FinCEN’s Customer Due Diligence (CDD) Rule requires institutions to:
- Identify and verify the identity of new customers
- Identify and verify the identity of the beneficial owners of companies opening accounts
- Understand the nature and purpose of customer relationships to develop customer risk profiles
- Conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information
CaseWare RCM is pleased to make available a 24-page report that explores best practices for complying with the beneficial ownership requirement of FinCEN’s CDD Rule and includes tips on:
- Identifying beneficial ownership, including the legal entity
- How to collect, verify, store, manage and maintain beneficial ownership data
- Opportunities for enhanced transaction monitoring and customer risk assessment from beneficial ownership data
About Andrew Simpson
Andrew Simpson (LinkedIn | Twitter) is Chief Operating Officer at CaseWare RCM and has more than 20 years of experience building businesses in the fields of information systems audit and security, data analytics, Anti-Money Laundering and forensics. He is a regular contributor to conferences and a recognized thought leader in financial crime management.