United States: Reinstating corporate secrecy protects money launderers and foreign criminals – not small businesses

The US Treasury’s decision to effectively exempt domestic companies from disclosing their real owners will reopen the US financial system to abuse by money launderers and corrupt officials from around the world, Transparency International said today.

On 2 March, the US Treasury announced that it will not enforce any penalties or fines associated with the Corporate Transparency Act (CTA) – a landmark law that introduced obligations for certain companies formed or registered in the US to report their real, or ‘beneficial’, owners to a confidential database housed at Treasury – under existing regulatory deadlines, nor will it enforce any penalties or fines against US domestic companies subject to the law after a forthcoming rule change takes effect. The Treasury has indicated that, going forward, it will seek to narrow the scope of the reporting requirements to foreign companies in order to reduce the burden on US small businesses.

Numerous cases from recent years show how foreign actors have misused domestic companies from Delaware to South Dakota to hide themselves and their dirty money. Transparency International’s recent analysis showed that the US was one of the primary destinations for illicit funds from Africa, with US-based legal entities being used to hold properties across the US – all anonymously.

Unless reversed, this decision will very likely lead to the US being found non-compliant with relevant global anti-money laundering and counter-terrorism finance standards set by the Financial Action Task Force (FATF). According to new criteria, FATF will prioritise jurisdictions with large financial sectors in drawing up its so-called “grey list” of countries with strategic deficiencies. Grey-listing by FATF can have negative reputational and economic consequences for the designated jurisdiction. The US will be evaluated by FATF in 2026.

Maíra Martini, Chief Executive Officer of Transparency International, said:

“Reporting obligations should not be seen as a burden because transparency in company ownership brings numerous benefits. It is essential that at minimum the authorities have information on ownership, given the high risk of misuse of anonymous companies – hurting, among others, legitimate businesses. Beneficial ownership records also help authorities save crucial time and resources when investigating crime. We urge the Treasury to reverse its decision.”

According to a recent survey, millions of US businesses have already complied with the law, with 68 per cent finding it “easy” to do so. Filing a report is required once and appears to take only a few minutes, with updates needed only if previously reported information changes – not annually. A 2019 review found that compliance costs with beneficial ownership disclosure obligations were rather low for businesses in the UK, particularly for micro and small businesses.

For years, business communities worldwide have supported beneficial ownership measures, recognising that transparency also enhances the business environment and safeguards legitimate companies from transacting with illicit actors.

These obligations are also critical to the efficiency and effectiveness of law enforcement investigations. According to the most recent evaluation by FATF, in the absence of a beneficial ownership register, law enforcement in the US “must often resort to resource-intensive and time-consuming investigative and surveillance techniques”.

Scott Greytak, Director of Advocacy for Transparency International U.S, said:

“The US’s national security, intelligence and law enforcement communities strongly supported the bipartisan Corporate Transparency Act because it stopped criminals from hiding behind anonymous shell companies, regardless of where those companies happened to be formed. Now, criminals can evade this national security law by simply starting and running those front companies inside the US.”

This troubling move follows other concerning developments of recent weeks, including the suspension of foreign bribery enforcement, disbanding of the KleptoCapture Task Force and the Kleptocracy Asset Recovery Initiative, and proposed plans to sell US residency and citizenship through ‘gold cards’. Taken together, these actions significantly increase the vulnerability of the US financial system to exploitation by criminal actors. Without a clean and adequately protected US financial system, communities around the world may continue to suffer at the hands of kleptocrats and organised crime groups.