Beneficial Ownership Transparency Takes Center Stage in the US

The United States has recently implemented a central beneficial ownership register, marking a significant milestone in the country’s efforts to regulate the disclosure and access of information about the real owners of companies.

A History of Beneficial Ownership Transparency Efforts

International Standards and Early Regulations

The concept of beneficial ownership transparency (BOT) has its roots in international standards developed by the Financial Action Task Force (FATF) and the Organisation for Economic Co-operation and Development (OECD) in the 1990s. These early regulations focused on ensuring that specific actors had access to information about individuals who own and control companies, with the goal of preventing them from being misused for illicit activities.

The USA PATRIOT Act and FinCEN’s Customer Due Diligence Requirements

Following the 9/11 attacks, countering terrorism financing became a key aspect of the FATF’s objectives. The USA PATRIOT Act of 2001 was the first major legislation in the US to require financial institutions to collect beneficial ownership information from non-US legal entities and certain individuals. This requirement was later expanded by the Financial Crimes Enforcement Network (FinCEN) as part of the Customer Due Diligence Requirements for Financial Institutions in 2016.

The Challenges with Existing Regulations

However, relying on banks and companies to provide beneficial ownership information proved problematic, with patchy data and delays that could tip off those under investigation. US policymakers began to view access to high-quality beneficial ownership information as a national security issue, highlighting its importance through studies by the Government Accountability Office.

The Corporate Transparency Act: A New Approach

The Creation of a Central Register

The Corporate Transparency Act (CTA), signed into law in 2021, marked a significant shift in the US approach to beneficial ownership transparency. The CTA requires companies to disclose their beneficial owners to authorities upfront, which has enabled the creation of a central register.

National Security and Beyond

While national security was the primary driver behind the US’s focus on beneficial ownership transparency, other countries have emphasized the importance of combating corruption and creating an enabling business environment through BOT reforms. The role of private sector actors in the development of BO reforms has been crucial in the US, with business interests initially resisting new regulations before later becoming key supporters.

Lessons Learned from the US Experience

The journey of the US private sector’s support for beneficial ownership transparency reforms is a testament to the importance of debunking entrenched narratives about regulation and its impact on businesses. As the US continues to implement its central register, it will be interesting to see how this new approach shapes the country’s stance on beneficial ownership transparency in the future.