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Law enforcement efforts to investigate corporations and limited liability companies suspected of being used for 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, the Government Accountability Office (see the U.S. Department of the Treasury 2020 Strategy - National Strategy for Combating Terrorist and Other Illicit Financing released on February 6, 2020).

Nearly 2,000,000 corporations and limited liability companies are formed in the U.S.A. under the laws of the States each year. Few States require information about the beneficial ownership 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 required to obtain a bank account, typically, not naming 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 used the newly created entities to commit crimes affecting 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. Lack of comprehensive AML requirements for certain financial institutions, gatekeeper professions, and anonymous purchases of real estate.

According to the US Treasury Report, certain financial institutions that qualify as “banks”, are not regulated by appropriate federal regulators, are exempted from AML, and provide banking services do not have AML programs in place and are not subject to Customer Identification Program (CIP) rules. There are approximately 669 of these institutions in the U.S.

They are classified as:

• State-chartered non-depository trust companies (some digital asset exchangers have reportedly taken steps to obtain),

• International banking entities (offshore banking entities chartered in Puerto Rico or the U.S. Virgin Islands),

• Non-federally insured, non-federally chartered banks and savings associations,

• Non-federally insured credit unions (common in Puerto Rico),

• Private banks.

It’s important to know that real estate professionals, mortgage brokers, real estate agents, lawyers, accountants, financial advisers and trust and company service providers may act as “complicit professionals” that assist criminals to launder money through real estate using legal entities to purchase or hold real estate via LLCs or LLPs, as well as through the use of nominees as purchasers or title holders of real estate.

Complicit actors in financial institutions and other businesses

The 2020 Strategy discusses how “complicit employees” at financial institutions as well as key gatekeepers use positions of trust and intimate technical knowledge to undermine AML measures. Criminal organizations seek out professionals to involve as accomplices.

U.S. law enforcement has increased its focus on these types of facilitators, which includes individuals in the financial sector, real estate agents, lawyers, and accountants.

The perception of the U.S. as a tax haven

The U.S. reputation in other jurisdictions as a tax haven has made it a place of choice for foreign investors.

In part because laws in a number of states protect the identity of an Ultimate Beneficial Owner (UBO).

A perception of the US as a tax haven further stems from lack of:

• US participation in the Common Reporting Standard (CRS),

• US reciprocity under Intergovernmental Agreements (IGA) with other countries under FATCA,

• US laws requiring the revelation of beneficial ownership of US corporations,

• Comprehensive Anti-Money Laundering (AML) measures in the non-financial sector: lawyers, accountants, real estate agents, trust, and company service providers.

On this information, the U.S. Treasury is motivated to close AML deficiency gaps.

Corporate Transparency Act

This act is to set; “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”. Financial Institutions are perceived by U.S. regulators as playing a key role in the fight against money laundering and financial crimes. Consequently, if the Corporate Transparency Act is signed into law, financial institutions will be required to participate in implementing its requirements to assist with the establishment of a secure national UBO database. Financial Institutions with concerns regarding the effectiveness of their existing customer due diligence and AML programs ought to obtain the right consulting and training advice from a specialized AML provider.

Written by Giacomo Breda

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