The US has taken steps with the Corporate Transparency Act to eliminate the potential use of anonymous shell companies for money laundering and tax evasion.
Congress passed the act, as part of the US Defense Appropriations Bill, on 1 Jan. with bipartisan support, overriding a veto by US President Donald Trump.
The new law requires corporations, limited liability companies (LLCs) and “similar entities” to report the natural persons who own and control an entity to the US Treasury’s Financial Crimes Enforcement Network (FinCEN), which has responsibility for storing and reviewing the data.
The information can be accessed by law enforcement for authorised investigations as well as financial institutions, with the consent of the reporting company, for customer due-diligence purposes.
Under the new law, private companies must provide the name, address, date of birth, and driver’s licence or other identification number of its beneficial owners.
Although the beneficial ownership information is not publicly available, transparency activists believe the new legislation is an important step in the fight against money laundering, corruption and tax evasion.
“For years, experts routinely ranked anonymous shell companies… as the biggest weakness in our anti-money laundering safeguards,” said Ian Gary, executive director of the FACT Coalition, which lobbied for the legislation.
“It’s the single most important step we could take to better protect our financial system from abuse.”
Gary said in a press release that the advocacy group’s campaign “was so successful that the State of Delaware and the U.S. Chamber of Commerce – both of which had previously opposed reform – ultimately endorsed transparency”.
Close to 2 million companies and LLCs are registered in the US at the state level each year. Only a few US states so far required companies to disclose their true owners.
Publicly-traded companies, closely-regulated companies, such as banks or utilities, and domestic funds that are operated by a registered investment adviser are exempt from reporting beneficial owners.
However, partnerships and trusts are likely to be considered “similar entities” described in the definition of reporting company, according to a client advisory by US law firm Katten. Explicit language that excluded limited partnerships and trusts from the definition of a reporting company in an earlier version of the bill was omitted from the act.