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Senators Propose Requiring Reporting of Beneficial Ownership Information

United States Senate Banking Committee members Mark Warner (D-VA), Tom Cotton (R-AR), Doug Jones (D-AL) and Mike Rounds (R-SD) proposed the Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activities in Shell Holdings Act (the "ILLICIT CASH Act"), which would impose federal beneficial owner reporting requirements intended to assist law enforcement in fighting money laundering and terrorist financing ("AML/CFT"). The Senate bill mirrors similar efforts in the House of Representatives (see the Corporate Transparency Act of 2019) that would require disclosure of the identities of natural persons who own 25 percent or more of the equity interests of corporations and limited liability companies at the time of formation and that would require such information to be kept updated going forward.

As previously covered, the Senate Banking Committee heard testimony from, among others, the Director of the Treasury Department's Financial Crimes Enforcement Network ("FinCEN") and the FBI's Financial Crimes Section Chief as to recent cases in which anonymous shell companies were used to "hide, support, prolong or foster" criminal activity. Representatives of both FinCEN and the FBI argued that if law enforcement agencies were able to identify the beneficial owners behind these legal entities more easily, they would be better able to address illicit financing activity.

The proposed ILLICIT CASH Act is designed to:

  • improve coordination between AML/CFT agencies;

  • establish beneficial ownership reporting requirements to improve corporate structure transparency and combat the use of shell corporations for illicit financing;

  • modernize AML/CFT laws to adapt to new threats;

  • encourage financial institutions to develop and adopt new technology for AML/CFT purposes; and

  • emphasize to financial intuitions that AML/CFT policies, procedures and controls should be risk-based.

Commentary

While each of the parallel Senate and House bills contains a range of AML/CFT provisions designed to enhance law enforcement coordination and resources, the main attraction is the beneficial ownership reporting requirement. If some form of the legislation is enacted into law, it would result in a massive database maintained by FinCEN of natural person identities behind legal entities formed under state law. It would also create a compliance obligation for changes in beneficial ownership that take place post-formation to be reported. The legislation would largely bring the United States in line with other jurisdictions, such as the United Kingdom and the European Union, which have enacted beneficial ownership requirements for various types of legal entities and transactions. While this concept has been kicking around for years, its advancement in both chambers of Congress means that it appears closer than ever to becoming a bipartisan reality.

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Commentary

The "ILLICIT CASH" Act. An ELEVEN LETTER acronym! That is impressive. If anyone is aware of federal legislation that has a longer acronym for its title, please let us know. For now, this looks like a Guinness book item. Whoever on the House side of this legislation came up with Corporate Transparency Act (what does CTA even stand for?) must now come to terms with the fact that it is the Senate's name that is going on any adopted legislation.

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