Back in 2021, the U.S. Government passed the Corporate Transparency Act (CTA), which was an effort to improve upon the Bank Secrecy Act (BSA) and bolster the nation's defenses against Money Laundering and Terrorist Financing. As part of this legislation, rules have been set to go into effect requiring businesses operating in the United States to provide to the Financial Crimes Enforcement Network (FinCEN) section of the U.S. Treasury information on beneficial owners of the company, both foreign and domestic, which had significant (25% or more) ownership of the company. Recently, proposed rule changes supported by the current administration exempt from this reporting any domestic beneficial owners, including American citizens who may be beneficial owners for foreign companies operating in the United States, as well as foreign pooled investment vehicles. While the move was touted as a means to relieve regulatory pressure and "onerous" reporting requirements on U.S. small businesses, what the change will mean in practice is a signal to money launderers globally that the United States is open for business.
Several factors were used as explanations for the drastic shift in the course of the reporting rule, but none so leaned upon as the supposed impact on U.S. small businesses. The statistics being used as support for this assertion have been FinCen's estimates regarding the cost to businesses to implement and comply with the reporting requirements. These were estimated at about $22 billion in the first year, with subsequent five-year projections of $6.9 billion for initial reporting and $2 billion for updates. These numbers would appear large to the casual observer, but pale in comparison to the estimated $300 billion that is laundered in the United States every single year, per the U.S. Treasury.1 Also, as a large portion of U.S. small businesses are sole proprietorships, the actual financial impact on reporting beneficial ownership information (BOI) for the businesses the rule change is alleged to unburden would be nominal. Considering the financial cost and the human costs of money laundering in the modern economy, implementation costs of this magnitude would be easily outpaced by the benefits to the public and U.S. tax coffers.
The next point to address is the assertion by the Secretary of the Treasury, the Attorney General, and the Secretary of Homeland Security that the collection of domestic entities and domestic beneficial owners would not serve the public interest and would not be highly useful in national security, intelligence, and law enforcement agency efforts to detect, prevent, or prosecute money laundering, the financing of terrorism, proliferation finance, serious tax fraud, or other crimes.2 To anyone who has worked in Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Compliance or a related field, this statement is patently ludicrous. In order to properly assess the risk a business poses to both a financial institution and the U.S. Financial System, knowledge regarding who ultimately controls the interests of a business, foreign or domestic, is and can only be a net positive. U.S. citizenship does not preclude one from engaging in dubious or illegal financial activity, and, in fact, this information can be paramount in identifying such activity. If a business looks legitimate at first glance, but is cash-intensive and has a low bar of access, such as gas stations, restaurants, or retail sales, the nature and background of the owners of these establishments can have a drastic impact on how a BSA/AML professional will handle the activity. If the owner has a strong history of business ownership, has no criminal record, and lives in proximity to the locations of his businesses, the activity could be perfectly acceptable. If the same business, with the exact same transactional activity and volumes, were to be owned by a first-time business owner with a history of drug trafficking or credit card fraud, and lists an address geographically distant from where the business purports to operate, the opportunity for this business to be used to funnel illicit proceeds into the U.S. Banking System is exponentially higher. Without up-to-date and actionable BOI records, this determination could not be properly made, resulting in higher operating costs for the institution and continuing exposure of the financial system to abuse.
Supporters of the exclusion of domestic beneficial owners will point to the continued requirement that foreign controlling parties for entities doing business in the U.S. provide their information. The assertion is an empty one, and does more to promote regulatory xenophobia than to aid in the elimination of money laundering from the system. If a foreign business entity endeavors to gain access to the American banking system as a stable economy to park illicit funding, or even funds intended for the support of terrorist organizations, all they would need to do to avoid the reporting requirement is to appoint an American citizen as the sole control person, while not giving the person any actual control over how the business operates or insight into its machinations. In fact, under the new model, a foreign company that has only American control persons would be exempt from BOI reporting entirely. Using this common "straw man" tactic, a foreign business or investment vehicle could harbor funds in U.S. banks without providing any information to FinCEN on beneficial ownership. In this way, the exemption provided to domestic control persons in this scenario renders the reporting rule almost entirely without purpose. Proponents of the exemptions also point to current regulations that require many financial institutions to receive beneficial ownership information from companies at the time of account opening. While in theory this would assist in filling gaps created by domestic obligations to report BOI to FinCEN, in action, this does not provide any expectation of accuracy. Beneficial ownership can often change, as well as how ownership is structured, and without a framework requiring frequent updates, any information provided on the ultimate BOI could be obsolete by the time transactions actually begin being processed through American Financial Institutions. Banks typically do not update Customer Identification Program/Know Your Customer (CIP/KYC) information on a regular basis and the author has personally seen major U.S. Banks with high-risk business relationships where no updates have been made to the record more than 5 years after account opening, thus using current BOI capture methods does nothing to replace the exclusion of domestic beneficial owner reporting in the CTA.
Money laundering has always been a problem, and likely always will be a problem. Financial criminals are given an ever-increasing toolkit of technology and methodologies that assist in the obfuscation of the source of funds. Coupled with the increasingly ubiquitous use of alternative banking products, virtual currency, neo-banks, Fintechs, and frictionless onboarding techniques in the global financial system, any move to reduce the tools for BSA/AML professionals and Law Enforcement will only embolden criminals and their proxies, and signal that the United States is not serious about combating financial crime.
Footnotes
1. https://www.paymentscardsandmobile.com/the-global-impact-of-money-laundering-in-2024/#:~:text=Country%2DSpecific%20Statistics,prison%20sentences%2C%20averaging%2071%20months Accessed 4/30/2025
2. https://www.federalregister.gov/documents/2025/03/26/2025-05199/beneficial-ownership-information-reporting-requirement-revision-and-deadline-extension#citation-19-p13691 Accessed 4/30/2025
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