Most states of the United States make it cheap and easy to organize limited-liability business entities such as corporations and limited liability companies. This is good for legitimate business, of course. But the states generally don’t require identification of the beneficial owners of new entities to the state, let alone to the public. This lack of transparency has led to criticism of the United States at home and abroad for the opacity of US entities, which allows them to be misused for money laundering and other illicit purposes and frustrates the efforts of governments to investigate financial crimes. In the abstract, one could wish that the states themselves would amend their laws to require more transparency, but as in many other areas, some states have been engaged in a “race to the bottom,” seeking to profit from the fees generated when they make their states more attractive for entity formation by providing even more privacy and opacity than is the norm. Thus it’s been clear for a long time that national legislation was required.
Congress has just passed the 2021 defense appropriations bill, and it was a pleasant surprise to read that the bill included the Corporate Transparency Act of 2019, which marks a major step in the fight against money laundering. Under the bill, which is nearly certain to become law (despite President Trump’s bizarre veto threat—the bill is a “must-pass” bill and it passed by a veto-proof margin), newly organized corporations and limited liability companies will have to file a report with FinCEN (the Financial Crimes Enforcement Network, a part of the Treasury Department) disclosing the name, date of birth, address, and identification number (from a passport, driver’s license, etc.) of each beneficial owner, and it will have to update the information annually. Corporations and LLCs will be barred from issuing bearer shares. Existing companies will also be subject to the new law, beginning two years after final regulations under the law are issued. There are notable exceptions, including various kinds of registered or regulated financial entities (public companies, banks, insurance companies, etc.), and larger operating companies (i.e., companies with more than 20 full-time employees, more than $5 million in gross receipts, and a physical office in the US). But it will reach the subsidiaries of such operating companies. So far the law does not require disclosure of the beneficial owners of partnerships, trusts, or other entities, but the bill would require a study of such matters that could lead to additional legislation.
The bill would not create a public registry; FinCEN will only disclose the beneficial ownership information it obtains to a law enforcement agency (including a foreign law enforcement agency that obtains an order under § 1782!) or, with a customer’s consent, a financial institution carrying out due diligence to comply with the Bank Secrecy Act or the PATRIOT Act. So the privacy business owners’ identities will continue to be protected, just not from the authorities charged with preventing financial crimes.