Senate Banking Committee Considers Testimony on Collecting Beneficial Ownership Information

Commentary by Christian Larson and Steven Lofchie

The U.S. Senate Committee on Banking, Housing and Urban Affairs considered testimony on the benefits of collecting beneficial ownership information for combating financial crime. The Committee heard from the U.S. Treasury Department Financial Crimes Enforcement Network ("FinCEN"), the FBI and the Office of the Comptroller of the Currency ("OCC").

FinCEN Director Kenneth Blanco urged Congress to require the collection of beneficial ownership information at the time when a legal entity is formed under state law. Mr. Blanco noted that while FinCEN's Customer Due Diligence rule has been impactful, it has not stopped illicit financing activity. Emphasizing the need for Congressional action, Mr. Blanco cited several cases in which anonymous shell companies were used to "hide, support, prolong or foster" criminal activity. Mr. Blanco argued that if beneficial ownership information had been available, law enforcement officials would have been able to address these crimes more quickly. Mr. Blanco also pointed out that collecting beneficial ownership information is becoming the international norm, and that the United States' "failure to lead here is perplexing to the global community."

FBI Financial Crimes Section Chief Steven D'Antuono advocated for the creation of federal- and state-level regimes to collect and consolidate beneficial ownership information. Helping law enforcement agencies to easily identify the beneficial owners of shell companies would, according to Mr. D'Antuono, help the agencies address illicit financing activity in a timely fashion. Mr. D'Antuono stated that the current process for finding this information is inefficient and costly, which is problematic for agencies with fewer resources than the FBI, such as state, local or tribal law enforcement. Furthermore, Mr. D'Antuono noted, there are a number of beneficial ownership disclosure requirements in other countries that Congress should consider, including:

  • the EU's Fourth and Fifth Anti-Money Laundering Directives, which require (i) legal entities to gather and hold information on beneficial ownership and (ii) beneficial ownership data to be publicly accessible;

  • the UK's collection of beneficial ownership information for companies, real property and trusts; and

  • bilateral agreements between the UK and its Crown Dependencies and Overseas Territories, which allow UK law enforcement to access company beneficial ownership information during investigations within 24 hours of a request.

OCC Senior Deputy Comptroller for Bank Supervision Policy Grovetta Gardineer advised Congress to establish a standardized approach for beneficial ownership data verification that would help law enforcement agencies, regulators and banks. In her testimony, Ms. Gardineer urged Congress to consider the compliance burden that any proposed policies may have on banks. Specifically, Ms. Gardineer criticized the compliance burden on banks caused by the implementation of the CDD Rule due to (i) difficulty in verifying ownership and control person information, (ii) requirements to periodically update the information a bank holds, and (iii) fixed ownership thresholds that are easy to structure around. To address these challenges, Ms. Gardineer urged Congress to either create a nationwide requirement for legal entities to provide, update and verify beneficial ownership information or create a centralized federal database that would maintain the information. In either situation, Ms. Gardineer emphasized, Congress must enact safeguards against data breaches and the misuse of personal information.

Commentary

Christian Larson

With both the EU and UK having implemented measures requiring beneficial ownership information to be collected, the U.S. is now an outlier for not having done the same. As a result, the U.S. increasingly shows up on other governments' blacklists related to tax transparency and money laundering. No U.S. state wants to be the first and only to collect beneficial ownership information, so any successful action would need to be at the federal level. Legislative proposals come and go, but the fact that the Senate Banking Committee is discussing this issue cannot be ignored.

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