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Corporate Transparency Act’s Draft Rule Applauded by FACT Coalition

Treasury Department Action Shows U.S. is Serious in Addressing its Role in Global Money Laundering and Corruption

WASHINGTON, DC – The Financial Accountability and Corporate Transparency (FACT) Coalition submitted detailed comments yesterday in response to the Treasury Department’s call for public input on a draft rule to implement the Corporate Transparency Act (CTA). The FACT Coalition applauded the strong draft rule that would help reduce money laundering and corruption. The rule which specifies the types of information corporations and other covered entities must provide to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) on which would reveal their true, beneficial owners.

“Secretary Yellen warned in December that the U.S. may be the ‘best place to hide and launder ill-gotten gains’, and FinCEN is to be commended helping to tackle this problem by proposing a rule that hews closely to the statutory language of the CTA,” Ian Gary, executive director of the FACT Coalition, said. “We commend FinCEN for creating a strong rule that will help tackle corruption and money laundering. The CTA had bipartisan support and – if implemented effectively — represents an historic opportunity to curtail the misuse of anonymous entities for illicit purposes by increasing beneficial ownership transparency.”

The draft rule includes many positive provisions, including strong definitions for “beneficial ownership” and “substantial control”, as well as reasonable, robust, and timely requirements for companies and owners to disclose their information to the beneficial ownership registry to be established by FinCEN. Under the proposed rule, every company must report at least one beneficial owner, which reflects the reality that entities must be controlled by individuals. Taken together, these aspects of the proposed rule should reduce gaps in coverage and improve the completeness, accuracy, and usefulness of information collected for use by law enforcement agencies and financial institutions.

“Revelations from the Pandora Papers and other investigative reports have made it clear that this reform is urgent,” Gary said. “Given President Biden’s stated priority to tackle global corruption, the U.S. must start by cleaning our own house, and establishing a nationwide standard for beneficial ownership disclosure following years of failing to keep up with international standards is a promising start.”

The FACT Coalition, comprised of more than 100 civil society organizations, campaigned for years for the passage of the CTA to address the myriad money-laundering, corruption, human rights, and national security harms enabled by anonymous shell companies.  The draft rule has attracted strong support from law enforcement groups, small business associations, human rights activists, and other organizations.

The FACT Coalition offered several proposals in its submission to FinCEN yesterday to improve the draft regulations. Importantly, FACT encouraged FinCEN to:

  • Revise an exemption for subsidiaries to ensure that the exemption applies only to subsidiaries that are wholly controlled or wholly owned by a specified exempt entity, in line with the statute.
  • Make certain that “FinCEN identifier” provisions improve database efficiency and minimize reporting burdens, but do not diminish ownership transparency or create a secrecy mechanism enabling beneficial owners to hide their identities from reporting companies.
  • Clarify that the beneficial ownership registry will deploy real-time and automated verification mechanisms to ensure that certain submitted data, including names, birth dates, addresses, and identification numbers, are consistent with other government-held records.

“FinCEN has proposed a strong rule but should revisit certain provisions to address critical ambiguities which should be resolved to ensure strong implementation of the Corporate Transparency Act in the way that we are sure both the Treasury Department and Congress intended,” Gary said. “We encourage the Treasury Department to proceed in a deliberate but timely manner to finish implementation of this critical tool to fight money laundering and the illicit financial flows that undermine democracy and economic equality around the world. Full implementation of the CTA will be an important element of what may be a landmark year of action in the U.S. fight against global corruption.”

FinCEN is expected to promulgate additional proposed rules on access to the beneficial ownership registry and necessary revisions to customer due diligence obligations for certain financial institutions in connection with the passage of the CTA, which are also critical to the implementation of the law.

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