Effective 1 January 2024, the United States Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) began collecting corporate beneficial ownership information intended to curb money laundering abuses perpetrated by anonymous shell companies.
Beneficial Ownership
A beneficial owner is the individual or individuals who ultimately controls or profits from a business entity. Complex business structures can obscure the true owner through proxies like nominee shareholders, shell companies and trusts.
Criminals and corrupt individuals exploit these structures to transfer funds globally while maintaining anonymity. Leaks such as the Panama Papers have exposed a vast industry of professionals, including lawyers and accountants, who facilitate the concealment of wealth for illicit purposes.
“Even though they haven’t been in place for more than a few years, there is growing evidence that public registers of beneficial ownership are important tools for advancing the fight against corruption, tax abuse and other financial crimes.” Transparency International discusses this in a September 2021 publication: Out in the open: How public beneficial ownership registers advance anti-corruption.
New U.S. requirements
The new U.S. requirements on top of existing EU regulations means nearly half the world’s commercial activity is subject to beneficial ownership reporting requirements.
In December, Gary Kalman, Transparency International U.S. Executive Director, issued the following statement:
With the publication of this rule, the U.S. advances a critical reform to our nation’s anti-money laundering laws. The law represents the most significant update to the rules protecting our financial system from abuse by corrupt and criminal actors in a generation.
About a week after its launch, Treasury Secretary Janet Yellen announced that 100,000 U.S. companies had already submitted their ownership information to the database.
“We’re closing a loophole and sending a clear message: The United States is not a haven for dirty money,” Yellen said in remarks given at the headquarters of FinCEN.
Trusts
The use of various financial arrangements, including trusts in New Zealand continues to be a major concern.
The new U.S. regulations exempts non-statutory trusts; trusts not created by filing legal documents with government agencies. Even these trusts may be affected if they have interests in regulated companies. In such cases, the company is responsible for reporting beneficial ownership, but trustees might have a duty to assist. Trustees, beneficiaries, settlors, and others involved in trust administration could be considered beneficial owners.
The Act's 'substantial control' test broadens the scope of beneficial ownership, encompassing individuals making significant decisions for the reporting company. Trusts with interests in entities must be regularly reviewed for accurate reporting.
We expect the U.S. regulations will have a significant impact globally; with companies doing business in New Zealand now required to provide beneficial ownership information.
