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Federal Register / Vol. 86, No. 233 / Wednesday, December 8, 2021 / Proposed Rules
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The United States does not have a centralized or other complete aggregation of information about who owns and operates legal entities within the United States. The information about U.S. legal entities that is readily available to law enforcement is limited to the information required to be reported when the entity is formed at the state or Tribal level, unless an entity opens an account at a covered financial institution that is required to collect certain BOI pursuant to the CDD Rule.
Though stateand Tribal-level entity formation laws vary, most jurisdictions do not require the identification of an entitys individual beneficial owners at the time of formation.9 In addition, the vast majority of states require disclosure of little to no contact information or information about an entitys officers.10
25 million reporting companies entities that are required to report BOI and are not exempt in existence when the proposed rule becomes effective.
9 See, e.g., GFI Report, pp. 4, 6. See also U.S.
Government Accountability Office, Company Formations: Minimal Ownership Information Is Collected and Available April 2006, available at https www.gao.gov/assets/gao-06-376.pdf. A few jurisdictions require information about entities beneficial owners. For example, effective January 1, 2020, the District of Columbia requires that entity registration filings state the names, residence and business addresses of each person whose aggregate share of direct or indirect, legal or beneficial ownership of a governance or total distributional interest of the entity:
A Exceeds 10%; or B Does not exceed 10%; provided, that the person:
i Controls the financial or operational decisions of the entity; or ii Has the ability to direct the day-to-day operations of the entity.
D.C. Code sec. 29102.01a6 2021, available at https code.dccouncil.us/us/dc/council/code/
sections/29-102.01.
10 See U.S. Government Accountability Office, Company Formations: Minimal Ownership Information Is Collected and Available April 2006, available at https www.gao.gov/assets/gao-06376.pdf. See also, e.g., The National Association of Secretaries of State NASS, NASS Summary of Information Collected by States June 2019, available at https www.nass.org/sites/default/files/
company%20formation/nass-business-entity-infocollected-june2019.pdf, noting that in its review of key business entity information collected by states during the entity formation process and in annual or periodic reports, it observed that while 49 states and the District of Columbia request information on registered agent and incorporators during formation, collection of other information is less widespread. For corporation formation, only 24
states collected a principal office address; 21 states collected contact or filer information; 17 states and the District of Columbia collected information about the directors, officers, managers, or members, though NASS notes that several states specify this as optional; and one state collected ownership or control information. For limited liability company formation, 32 states and the District of Columbia collected a principal office address; 20 states collected contact or filer information; 20 states collected information about the directors, officers, managers, or members though NASS noted this collection requirement may be optional; and 2

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ii. The Value of BOI and the Department of the Treasurys Efforts To Address the Lack of Transparency in Legal Entity Ownership Structures Access to BOI reported under the CTA
would significantly enhance the U.S.
Government and law enforcements ability to protect the U.S. financial system from illicit use. It would also impede malign actors from abusing legal entities to conceal proceeds from criminal acts that undermine U.S.
national security, such as corruption, human smuggling, drug and arms trafficking, and terrorist financing. For example, BOI can add valuable context to financial analysis in support of law enforcement and tax investigations. It can also provide essential information to the intelligence and security professionals who work to prevent terrorists, proliferators, and those who seek to undermine our democratic institutions or threaten other core U.S.
interests from raising, hiding, or moving money in the United States through anonymous shell or front companies.11
Broadly, and critically, BOI can assist in the identification of linkages between potential illicit actors and business entities, including shell companies.
Shell companies are typically nonpublicly traded corporations, limited liability companies, or entities that have no physical presence beyond a mailing address and generate little to no independent economic value,12 and states collected ownership or control information.
It appears more states collected information during periodic reports than formation, but ownership information remained the least reported, with 3
states and 2 states collecting such information from corporations and limited liability companies, respectively. In its 2019 state-by state analysis of incorporation requirements, the GFI found that 1
23 states Alaska, Arkansas, Connecticut, Indiana, Illinois, Maine, Michigan, Minnesota, Missouri, Mississippi, Montana, North Carolina, New Hampshire, New Mexico, Nevada, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas, Virginia, Washington, and Wisconsin and the District of Columbia do not require that a companys address be provided; 2 every state requires the name of the person who incorporated the company; 3 four states Alaska, California, Ohio and Virginia do not require the incorporators address; 4 13 states require information about a companys directors; and 5 five states require information about a companys officers either upon incorporation or within the first 90 days after incorporation. GFI Report, supra note 4, p. 4.
11 A front company generates legitimate business proceeds to commingle with illicit earnings. See U.S. Department of the Treasury, National Money Laundering Risk Assessment 2018, p. 29, available at https home.treasury.gov/system/files/136/
2018NMLRA_12-18.pdf.
12 FinCEN Advisory, FIN2017A003, Advisory to Financial Institutions and Real Estate Firms and Professionals, p. 3 August 22, 2017, available at https www.fincen.gov/sites/default/files/advisory/
2017-08-22/
Risk%20in%20Real%20Estate%20Advisory_
FINAL%20508%20Tuesday%20%28002%29.pdf.

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often are formed without disclosing their beneficial owners. Furthermore, shell companies can be used to conduct financial transactions without disclosing their true beneficial owners involvement.
Some of the principal authors of the CTA in the Senate and U.S. House of Representatives recently wrote to Department of the Treasury Secretary Janet L. Yellen that effective and timely implementation of the new BOI
reporting requirement will be a dramatic step forward, strengthening U.S.
national security by making it more difficult for malign actors to exploit opaque legal structures to facilitate and profit from their bad acts. . . . This means writing the rule broadly to include in the reporting as many corporate entities as possible while narrowly limiting the exemptions to the smallest possible set permitted by the law. 13 They went on to note that such an approach will address the current and evolving strategies that terrorists, criminals, and kleptocrats employ to hide and launder assets. It will also foreclose loophole options for creative criminals and their financial enablers, maximize the quality of the information collected, and prevent the evasion of BOI reporting. 14 The integration of BOI reported pursuant to the CTA with the current data collected under the Bank Secrecy Act BSA,15 and other Most shell companies are formed by individuals and businesses for legitimate purposes, such as to hold stock or assets of another business entity or to facilitate domestic and international currency trades, asset transfers, and corporate mergers. Shell companies can often be formed without disclosing the individuals that ultimately own or control them i.e., their beneficial owners and can be used to conduct financial transactions without disclosing their true beneficial owners involvement. Id.
While shell companies are used for legitimate corporate structuring purposes including in mergers or acquisitions, they are also used in common financial crime schemes. See FinCEN, The Role of Domestic Shell Companies in Financial Crime and Money Laundering: Limited Liability Companies November 2006, p. 4, available at https
www.fincen.gov/sites/default/files/shared/
LLCAssessment_FINAL.pdf.
13 United States Congress, Letter from Senator Sherrod Brown, Chairman of the Senate Committee on Banking, Housing and Urban Affairs, Representative Maxine Waters, Chairwoman of the House Committee on Financial Services, and Representative Carolyn B. Maloney, Chairwoman of the House Committee on Oversight and Reform, letter to Department of the Treasury Secretary Janet L. Yellen November 3, 2021, available at https
financialservices.house.gov/uploadedfiles/11.04_
waters_brown_maloney_letter_on_cta.pdf.
14 Id.
15 Section 60031 of the Anti-Money Laundering Act of 2020 defines the BSA as comprising Section 21 of the Federal Deposit Insurance Act 12 U.S.C.
1829b, Chapter 2 of Title I of Public Law 91508
12 U.S.C. 1951 et seq., and Subchapter II of Chapter 53 of Title 31, United States Code. Congress has authorized the Secretary to administer the BSA.
The Secretary has delegated to the Director of
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