Jubilee USA submission to the consultation on the Advanced Notice of Proposed Rulemaking on Beneficial Ownership Information Reporting Requirements.
Click here to read this submission on the official consultation website.
May 5, 2021
Acting Director Michael Mosier
Financial Crimes Enforcement Network (FinCEN)
U.S. Department of Treasury
P.O. Box 39 Vienna, VA 22183
Re: Advanced Notice of Proposed Rulemaking on Beneficial Ownership Information Reporting Requirements (RIN 1506-AB49 / Docket Number FINCEN-2021-0005)
Jubilee USA Network appreciates the opportunity to comment on the advanced notice of proposed rulemaking, “Beneficial Ownership Information Reporting Requirements.”
We are an alliance of more than 75 US organizations and 750 faith communities working with 50 Jubilee global partners to build an economy that serves, protects and promotes the participation of the most vulnerable. We are concerned with how financial secrecy, corruption and tax evasion are connected to poverty in the United States and abroad. In particular, we have witnessed how anonymous shell companies have facilitated exploitation of vulnerable communities and supported corrupt regimes in the developing world.
The Corporate Transparency Act introduces transparency into otherwise anonymous corporate structures by requiring companies to report their true, “beneficial” owners to a secure directory housed at FinCEN.
We promoted and worked towards passage of this legislation for more than 10 years. During that time we built support with members of Congress, senators and Administrations from both parties. We made this investment because our members* consider this legislation essential to: 1) stop ways that human traffickers hide and make profits, 2) prevent the exploitation of vulnerable communities in the United States through Medicaid and Medicare fraud, 3) curb the theft of development and debt relief aid, 4) reveal theft from corrupt foreign governments of public monies, and 5) help raise revenue in the developing world.
Our members have an interest in seeing strong, effective rules that maximize the law’s potential to contribute to such purposes. This is the spirit that informs our formulation of responses to this call for comments.
Below please find our responses to some of the questions under the ANPRM sections on “Definitions” and on “Security and use of beneficial ownership and applicant information.”
We encourage FinCEN to be broad in its determination of which entities are required to report their beneficial owners, to avoid driving corrupt actors and fraudsters to demand other structures outside the reach of the rule.
The CTA requires reporting from LLCs, corporations, and “other similar entities” formed or registered to do business in the United States that file a document with a secretary of state or similar office. We urge FinCEN to take a broad interpretation of “other similar entities” to include structures not expressly exempt from disclosure.
The CTA defines a beneficial owner of an entity as an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (i) exercises substantial control over the entity, or (ii) owns or controls not less than 25 percent of the ownership interests of the entity.
We consider the definition is clear, intended to provide a standard that takes into account the myriad ways that an individual may exercise control over an entity while holding minimal or even no formal ownership interest. In that regard, we encourage FinCEN to use this test with flexibility, and not to devise numerical or rigid tests which, by their very nature, may create evasion routes.
Ways to exercise substantial control include written and unwritten agreements, arrangements, or understandings on behalf of the company; direct actions by company directors or officers; letters of wishes; authority over personnel decisions; or leveraging economic pressure on company shareholders or employees.
The CTA contains numerous exemptions from the definition of “reporting companies.” We consider that, to remain consistent with the intention of the CTA, FinCEN should interpret exemptions narrowly. Congress generally justified the exemptions as a way to avoid duplicating disclosure requirements for entities that already share in one way or another their owners to the government, or whose owners are easily discoverable by law enforcement. So, as a general principle, exemptions should not be construed in ways that cover companies that do not meet the intention of Congress.
In particular, we caution FinCEN of the risks of the exemption for pooled investment vehicles. The FBI and other law enforcement entities are increasingly recognizing these entities to be a vehicle for criminals, fraudsters, and US adversaries to launder funds.
To likewise prevent further abuse, FinCEN should interpret the exemption applying to subsidiaries whose ownership interests are owned or controlled by one or more of certain identified exempt entities to only be available to subsidiaries "wholly owned" by the parent.
We also want to highlight other high-risk exemptions such as the ones for dormant companies, private equity and money services businesses (MSBs).
We would encourage FinCEN not to open any new exemptions until FinCEN has gotten an understanding of the current impact of existing exemptions.
Security and use of beneficial ownership and applicant information
The CTA includes a mandate that the database provide “highly useful” information to law enforcement. We believe that such mandate should inform the approach to all questions under this section of the ANPRM. Law enforcement – federal, state, local, tribal, and, in appropriate cases, foreign – and financial institutions with anti-money laundering obligations should have simple, comprehensive, and timely access to this information. We likewise encourage FinCEN to devote resources into the design of the database, such that its searchability and data quality yield the “highly useful” results for law enforcement the CTA intended. FinCEN may consider adding steps to verify data, e.g. driver’s license numbers, before it is entered into the database to ensure accuracy.
Properly trained law enforcement – whether a local police officer, tax investigator, or a national security official – should be able to access companies’ full records in the database in a timely manner. FinCEN should not unnecessarily complicate access protocols for law enforcement, and should likewise allow authorized use of the database for a wide range of enforcement purposes. Such purposes could include pursuing initial inquiries or open investigations, analyses, reviews, or other national security and intelligence matters. FinCEN should also allow use of the database for civil and administrative cases.
FinCEN should not require state and local law enforcement to overcome unnecessary hurdles to get authorization to access the database. FinCEN should allow these agencies to seek authorization from any “court of competent jurisdiction” – to include a federal, state, or local court.
Likewise, the CTA allows U.S. government agencies to make requests of the database on behalf of foreign law enforcement officials for countries that have existing information sharing agreements or that are “trusted foreign countries.” FinCEN should define the term “trusted foreign countries” with a view to foster multilateral law enforcement collaboration.
FinCEN should allow financial institutions to have full, immediate access to ownership records in the database following appropriate protocols, like is available to law enforcement. This should include, for instance, companies’ chain of current ownership and related parents, affiliates, and subsidiaries. Slowing access to the database for financial institutions with due diligence requirements would render the registry less useful in combating illicit activity and create restrictions that have no statutory basis.
Corporate transparency will have a major impact in reducing international corruption, thereby providing vulnerable populations with the means to access resources for building schools, hospitals, and the infrastructure necessary for development. Additionally, the collection of beneficial ownership information will make it harder for those stealing from the most vulnerable to use the United States financial system as a safe haven to hide their money. Jubilee USA Network looks forward to working with FinCEN during its rulemaking on the Corporate Transparency Act to ensure this mission is achieved.
In closing, we thank you again for your consideration of these comments. For any questions or clarifications on our comments please feel free to contact Aldo Caliari at [email protected]
Jubilee USA Network
* Reflection of this broad support is a letter we organized last year in which more than a 100 religious organizations, congregations, faith-based communities and others urging U.S. Senators to support the Corporate Transparency Act (available at http://www.jubileeusa.org/jubilee_usa_anti_money_laundering_act_of_2020_letter)