The United States is known in other jurisdictions as a tax haven and a place of choice for foreign investors. This is partly because laws in the states of Delaware, Wyoming and Nevada that protect the identity of the ultimate beneficial owner (UBO) have historically protected anonymity. A perception of the United States as a tax haven further stems from lack of:

• U.S. participation in the common reporting standard (CRS)
• U.S. reciprocity under intergovernmental agreements (IGA) with other countries under FATCA
• U.S. laws requiring the revelation of beneficial ownership of U.S. corporations
• Comprehensive anti-money laundering (AML) measures in the nonfinancial sector: lawyers, accountants, real estate agents, trust and company service providers

Corporate Transparency Act of 2019—Targets UBO

On Oct. 22, the "Corporate Transparency Act of 2019" (CTA)  that was passed as a bill by the U.S. House of Representatives (now moving to the Senate): "To ensure that persons who form corporations or limited liability companies in the United States disclose the beneficial owners of those corporations or limited liability companies, in order to prevent wrongdoers from exploiting United States corporations and limited liability companies for criminal gain, to assist law enforcement in detecting, preventing, and punishing terrorism, money laundering, and other misconduct involving United States corporations and limited liability companies, and for other purposes".

Summary of Congressional Findings Under the CTA

• Nearly 2,000,000 corporations and limited liability companies are formed under the laws of the States each year.
• Very few States require information about the beneficial owners of the corporations and limited liability companies formed under their laws.
• A person forming a corporation or limited liability company within the United States typically provides less information at the time of incorporation than is needed to obtain a bank account or driver's license and typically does not name a single beneficial owner
• Criminals have exploited State formation procedures to conceal their identities when forming corporations or limited liability companies in the United States, and have then used the newly created entities to commit crimes affecting interstate and international commerce such as terrorism, proliferation financing, drug and human trafficking, money laundering, tax evasion, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption.
• Law enforcement efforts to investigate corporations and limited liability companies suspected of committing crimes have been impeded by a lack of available beneficial ownership information; as documented in reports and testimony by officials from the Department of Justice, the Department of Homeland Security, the Department of the Treasury, and the Government Accountability Office, and others.
• In July 2006, the leading international antimoney laundering standard-setting body, the Financial Action Task Force on Money Laundering (in this section referred to as the FATF), of which the United States is a member, issued a report that criticizes the United States for failing to comply with a FATF standard on the need to collect beneficial ownership information and urged the United States to correct this deficiency by July 2008. In December 2016, FATF issued another evaluation of the United States, which found that little progress has been made over the last ten years to address this problem. It identified the "lack of timely access to adequate, accurate and current beneficial ownership information" as a fundamental gap in United States efforts to combat money laundering and terrorist finance.
• In response to the 2006 FATF report, the United States has urged the States to obtain beneficial ownership information for the corporations and limited liability companies formed under the laws of such states.
• In contrast to practices in the United States, all 28 countries in the European Union are required to have corporate registries that include beneficial ownership information.
• To reduce the vulnerability of the United States to wrongdoing by United States corporations and limited liability companies with hidden owners, to protect interstate and international commerce from criminals misusing United States corporations and limited liability companies, to strengthen law enforcement investigations of suspect corporations and limited liability companies, to set a clear, universal standard for State incorporation practices, and to bring the United States into compliance with international anti-money laundering standards, Federal legislation is needed to require the collection of beneficial ownership information for the corporations and limited liability companies formed under the laws of such states.

The CTA Calls for Transparent Incorporation Practices

• When forming a corporation or limited liability company under the laws of a State (or Indian Tribe), the applicant shall file a report with FinCEN containing a list of the beneficial owners of the corporation or limited liability company that identifies each beneficial owner by:
• Full legal name
• Date of birth
• Current residential or business street address
• A unique identifying number from a non-expired passport issued by the United States, a nonexpired personal identification card, or a non-expired driver's license issued by a State
• Each corporation or limited liability company formed under the laws of a state (or Indian Tribe shall) shall submit to FinCEN an annual filing containing a list of:
• Current beneficial owners of the corporation or limited liability company and the identification information
• Changes in the beneficial owners of the corporation or limited liability company
• Update to the list of the beneficial owners of the corporation or limited liability

Under the CTA, it will be unlawful to:

• Provide, false or fraudulent beneficial ownership information, including a false or fraudulent identifying photograph, to FinCEN
• Fail to provide complete or updated beneficial ownership information to FinCEN

There will be civil and criminal penalties for the misuse or unauthorized disclosure of beneficial ownership information.

Financial Institutions play a key role in the fight against money laundering and financial crimes.  Consequently, Financial Institutions ought to be prepared to comply with the requirements of the CTA to assist with the establishment of a secure national UBO database.

Financial Institutions that perhaps don't have the right customer due diligence and BSA/AML programs in place ought to obtain the right consulting and training advice from a specialized BSA/AML provider.