The AMLA set the stage for establishing a national reporting system for beneficial ownership and for potentially changing current CDD/BO requirements in an effort to improve financial transparency and prevent criminals and terrorists from misusing companies to disguise illicit activity. With the still-unfolding fallout from the Pandora Papers leak, now is an optimal time to evaluate the effectiveness of your beneficial ownership and due diligence program. This overview will examine how international concern about beneficial ownership has impacted new requirements, describe the current requirements, and provide input on potential changes.
Since 2016, three serious document leaks have made international news and exposed the activity of powerful political elites or wealthy individuals who used shell companies to disguise the source of funds and avoid taxes. Most recently, the Pandora Papers leak in October 2021 revealed millions of documents from 14 law firms linked to hundreds of offshore accounts. More than 330 politicians from 90 countries, 35 current or former heads of state, 133 Forbes billionaires, and 46 Russian oligarchs were implicated. The Organization for Economic Co-operation estimates that the transferred funds uncovered in the Pandora Papers leak totaled $11 trillion.
Document leaks like the Pandora Papers and earlier ones impact the credibility of institutions worldwide and illustrate how crucial it is that banks know their customers. They also have highlighted the difficulty U.S. financial institutions can encounter in piercing the corporate veil through efforts to determine beneficial ownership.
In response to the leaks, the AMLA heightened measures that align the U.S. beneficial ownership requirements more closely with foreign countries. It also increased penalties for AMLA violations and enhanced whistleblower protections. The Financial Crimes Enforcement Network (FinCEN) recently announced a Notice of Proposed Rulemaking to implement the AMLA’s requirements. The proposed rule makes new distinctions regarding who must file a BOI report, what information must be reported, and when a report is due. Among the changes:
- Covered entities, not financial institutions, would be required to report beneficial ownership information to FinCEN directly at the time the business is created.
- The definition of who is considered a beneficial owner is expanded.
The notice is open for public comment until February 7, 2022.