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Federal Register / Vol. 86, No. 233 / Wednesday, December 8, 2021 / Proposed Rules
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provides only a partial solution.60 The information about beneficial owners of certain U.S. entities is generally not comprehensive and not reported to the Government, and therefore not immediately available to law enforcement, intelligence, and national security agencies. Other FinCEN
authoritiesgeographic targeting orders 61 and the so-called 311
measures i.e., special measures imposed on jurisdictions, financial institutions, or international transactions of primary money laundering concern 62offer temporary and targeted tools. Neither provides law enforcement the ability to quickly and efficiently follow the money.
Shell companies, in particular, demonstrate how critical a centralized database of beneficial ownership information is for investigators.
Treasurys 2020 Illicit Financing Strategy addressed in part how current sources of information are inadequate to prosecute the use of shell entities to hide ill-gotten gains. In particular, while law enforcement agencies may be able to use subpoenas and access public databases to collect information to identify the owners of corporate structures, the 2020 Illicit Financing Strategy explained that there are numerous challenges for federal law enforcement when the true beneficiaries of illicit proceeds are concealed through shell or front companies. 63 In May 2019 testimony before the Senate Banking, Housing, and Urban Affairs Committee, then-FinCEN Director Blanco provided examples of criminals information on a risk basis, specifying that customer information includes the beneficial owners of legal entity customers. As noted in the supplementary material to the final rule, FinCEN
did not construe this obligation as imposing a categorical, retroactive requirement to identify and verify BOI for existing legal entity customers.
Rather, these provisions reflect the conclusion that a financial institution should obtain BOI from existing legal entity customers when, in the course of its normal monitoring, the financial institution detects information relevant to assessing or reevaluating the risk of such customer. Final Rule, Customer Due Diligence Requirements for Financial Institutions, 81 FR 29398, 29404 May 11, 2016.
60 See U.S. Money Laundering Threat Assessment Working Group, U.S. Money Laundering Threat Assessment 2005, pp. 4849, available at https
www.treasury.gov/resource-center/terrorist-illicitfinance/documents/mlta.pdf. See also Congressional Research Service, Miller, Rena S. and Rosen, Liana W., Beneficial Ownership Transparency in Corporate Formation, Shell Companies, Real Estate, and Financial Transactions July 8, 2019, available at https
crsreports.congress.gov/product/pdf/R/R45798.
61 31 U.S.C. 5326a; 31 CFR 1010.370.
62 31 U.S.C. 5318A, as added by section 311 of the USA PATRIOT Act Pub. L. 10756.
63 2020 Illicit Financing Strategy, supra note 35, p. 14, available at https home.treasury.gov/
system/files/136/National-Strategy-to-CounterIllicit-Financev2.pdf.

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who used anonymous shell corporations, including: A Russian arms dealer nicknamed The Merchant of Death, who sold weapons to a terrorist organization intent on killing Americans. Executives from a supposed investment group that perpetrated a Ponzi scheme that defrauded more than 8,000 investors, most of them elderly, of over $1 billion. A complex nationwide criminal network that distributed oxycodone by flying young girls and other couriers carrying pills all over the United States. A New York company that was used to conceal Iranian assets, including those designated for providing financial services to entities involved in Irans nuclear and ballistic missile program. A former college athlete who became the head of a gambling enterprise and a violent drug kingpin who sold recreational drugs and steroids to college and professional football players. A corrupt Venezuelan treasurer who received over $1 billion in bribes. He continued, These crimes are very different, as are the dangers they pose and the damage caused to innocent and unsuspecting people. The defendants and bad actors come from every walk of life and every corner of the globe. The victimsboth direct and indirectinclude Americans exposed to terrorist acts; elderly people losing life savings; a young mother becoming addicted to opioids; a college athlete coerced to pay extraordinary debts by violent threats; and an entire country driven to devastation by corruption. But all these crimes have one thing in common: shell corporations were used to hide, support, prolong, or foster the crimes and bad acts committed against them. These criminal conspiracies thrived at least in part because the perpetrators could hide their identities and illicit assets behind shell companies. Had beneficial ownership information been available, and more quickly accessible to law enforcement and others, it would have been harder and more costly for the criminals to hide what they were doing. Law enforcement could have been more effective and efficient in preventing these crimes from occurring in the first place, or could have intercepted them sooner and prevented the scope of harm these criminals caused from spreading. 64
During the same hearing in front of the Senates Committee on Banking, Housing, and Urban Affairs in May 64 FinCEN, Testimony for the Record, Kenneth A.
Blanco, Director, U.S. Senate Committee on Banking, Housing and Urban Affairs May 21, 2019, available at https www.banking.senate.gov/
imo/media/doc/Blanco%20Testimony%205-2119.pdf.

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2019, the FBIs DAntuono explained that the strategic use of shell and front companies makes investigations exponentially more difficult and laborious. The burden of uncovering true beneficial owners can often handicap or delay investigations, frequently requiring duplicative, slowmoving legal process in several jurisdictions to gain the necessary information. This practice is both time consuming and costly. The ability to easily identify the beneficial owners of these shell companies would allow the FBI and other law enforcement agencies to quickly and efficiently mitigate the threats posed by the illicit movement of the succeeding funds. In addition to diminishing regulators, law enforcement agencies, and financial institutions ability to identify and mitigate illicit finance, the lack of a law requiring production of beneficial ownership information attracts unlawful actors, domestic and abroad, to abuse our state-based registration system and the U.S. financial industry. 65
In February 2020, then-Secretary of the Treasury Steven T. Mnuchin testified at a Senate hearing on the Presidents Fiscal Year 2021 Budget that the lack of information on who controls shell companies is a glaring hole in our system. 66 In his December 9, 2020, floor statement accompanying the AML
Act, Senator Sherrod Brown, the thenRanking Member of the Senate Committee on Banking, Housing, and Urban Affairs and one of the primary authors of the enacted CTA, stated that the reporting of BOI will help address longstanding problems for U.S. law enforcement. It will help them investigate and prosecute cases involving terrorism, weapons proliferation, drug trafficking, money laundering, Medicare and Medicaid fraud, human trafficking, and other crimes. And it will provide ready access to this information under longestablished and effective privacy rules.
Without these reforms, criminals, terrorists, and even rogue nations could continue to use layer upon layer of shell companies to disguise and launder illicit funds. That makes it harder to hold bad actors accountable, and puts 65 FBI, Testimony of Steven M. DAntuono, Section Chief, Criminal Investigative Division, Combatting Illicit Financing by Anonymous Shell Companies May 21, 2019, available at https
www.fbi.gov/news/testimony/combating-illicitfinancing-by-anonymous-shell-companies.
66 Steven T. Mnuchin Secretary, Department of the Treasury, Transcript: Hearing on the Presidents Fiscal Year 2021 Budget before the Senate Committee on Finance February 12, 2020, p. 25, available at https www.finance.senate.gov/
imo/media/doc/45146.pdf.

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