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| Photo Credit: AP. |
WASHINGTON (AP) — Tens of millions of small U.S. companies will be required to provide the government with details on their owners and others who benefit from them under a regulation finalized Thursday that’s intended to peel back the layers of ownership that can hide unlawfully obtained assets.
The Treasury
Department said it was moving to create a database that will contain personal
information on the owners of at least 32 million U.S. businesses as part of an
effort to combat illicit finance. Treasury officials said the new rule
represents a sea change in the world of corporate transparency.
The
regulation comes in the midst of U.S. and Western allies’ ongoing attempts to
sanction Russian oligarchs and wealthy friends of Russian President Vladimir
Putin since the start of his invasion of Ukraine. The wealthy Russians are
accused of hiding stolen money and assets in the U.S. and around the world.
“This rule will make it harder for criminals,
organized crime rings, and other illicit actors to hide their identities and
launder their money through the financial system,” Treasury Secretary Janet
Yellen said in a statement.
“It will
help strengthen our national security by making it more difficult for
oligarchs, terrorists, and other global threats to use complex legal structures
to launder money, traffic humans and drugs, and commit other crimes that
threaten harm to the American people,” she said.
The rule
will require most American businesses with fewer than 20 employees to register
with the government as of Jan. 1, 2024. Treasury officials said the regulatory
burden will be small, costing about $85 per business, but will offer massive
benefits to law enforcement. Small businesses are targeted because shell
companies, often used to hide illegally obtained assets, tend to have few
employees.
The rule
requires reporting companies to disclose information on the people who own,
control or create firms, including the name, birthdate, address and a unique
identification number from driver’s licenses or passports as well as images of
the documents.
The database
will be available only to law enforcement and government agencies.
Ian Gary,
the executive director of the FACT Coalition, a nonprofit that promotes
corporate transparency, called the release of the new rule “a historic moment
in the decadeslong fight to rid the U.S. of dirty money.”
“The U.S. has fallen behind many jurisdictions
in requiring the true owners of corporate and other entities to be disclosed,”
Gary said.
Gary said
there is more work to be done to fully implement the rule.
Treasury
said it will pursue subsequent rulemakings that will address access to the
database and other enhancements to the new regulation.
The National
Federation of Independent Businesses in February raised privacy concerns about
the rule, saying that the Financial Crimes Enforcement Network, which is tasked
with creating the database, must provide the same safeguards for the
information that apply to other U.S. intelligence agencies.
The
regulation implements the reporting provisions of the Corporate Transparency
Act, which was enacted as part of the National Defense Authorization Act for
fiscal 2021.
Brian North,
a business law attorney at Buchanan Ingersoll Rooney in Philadelphia, said the
biggest impact of the database will be its use as a tool for helping law
enforcement.
“If an
entity was being used to avoid sanctions,” for example, he said, “the database
would be used to provide information to the government to assist in its
enforcement.”
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