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Federal Register / Vol. 86, No. 233 / Wednesday, December 8, 2021 / Proposed Rules
more recent example, in a federal criminal complaint unsealed in March 2021, the Department of Justice charged 10 Iranian nationals with running a nearly 20-year-long scheme to evade U.S. sanctions on the Government of Iran by disguising more than $300
million worth of transactions including the purchase of two $25
million oil tankerson Irans behalf through front companies in the San Fernando Valley, Canada, Hong Kong and the United Arab Emirates.51 The U.S. State Department has designated Iran as a state sponsor of terrorism.
During the scheme, the defendants allegedly created and used more than 70
front companies, money service businesses, and exchange houses in the United States, Iran, Canada, the United Arab Emirates and Hong Kong. The defendants also allegedly made false representations to financial institutions to disguise more than $300 million worth of transactions on Irans behalf, using money wired in U.S. dollars and sent through U.S.-based banks.52
iv. The Law Enforcement Need for Improved BOI Collection
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Although the U.S. Government has tools capable of obtaining some beneficial ownership information, their limitations and the time and cost required to successfully deploy them demonstrate the significant benefits that a centralized repository of information would provide law enforcement. The CTA explains that malign actors seek to conceal their ownership of corporations, limited liability companies, or other similar entities in the United States to facilitate illicit activity, yet most or all States do not require information about the beneficial owners of the corporations, limited liability companies, or other similar entities formed under the laws of the State. The CTA continues, money launderers and others involved in commercial activity intentionally conduct transactions through corporate structures in order to evade detection, and may layer such structures . . .
across various secretive jurisdictions such that each time an investigator obtains ownership records for a domestic or foreign entity, the newly identified entity is yet another corporate 51 U.S. Department of Justice U.S. Attorneys Office, Central District of California, Iranian Nationals Charged with Conspiring to Evade U.S.
Sanctions on Iran by Disguising $300 Million in Transactions Over Two Decades March 19, 2021, available at https www.justice.gov/usao-cdca/pr/
iranian-nationals-charged-conspiring-evade-ussanctions-iran-disguising-300-million.
52 Id.

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entity, necessitating a repeat of the same process. 53
As Kenneth A. Blanco, then-Director of FinCEN observed in testimony to the U.S. Senate Committee on Banking, Housing and Urban Affairs, and based on his experience as a former state and Federal prosecutor, identifying the ultimate beneficial owner of a shell or front company in the United States often requires human source information, grand jury subpoenas, surveillance operations, witness interviews, search warrants, and foreign legal assistance requests to get behind the outward facing structure of these shell companies. This takes an enormous amount of timetime that could be used to further other important and necessary aspects of an investigationand wastes resources, or prevents investigators from getting to other equally important investigations.
The collection of beneficial ownership information at the time of company formation would significantly reduce the amount of time currently required to research who is behind anonymous shell companies, and at the same time, prevent the flight of assets and the destruction of evidence. 54 He also noted during the testimony that identifying and disrupting illicit financial networks not only assists in the prosecution of criminal activity of all kinds, but also allows law enforcement to halt and dismantle criminal organizations and other bad actors before they harm our citizens or our financial system. 55
The FBIs Steven M. DAntuono elaborated on these difficulties, testifying before the Senate Banking Housing and Urban Affairs Committee in 2019 that the process for the production of records can be lengthy, anywhere from a few weeks to many years, and . . . . can be extended drastically when it is necessary to obtain information from other countries . . . . If an investigator obtains the ownership records, either from a domestic or foreign entity, the investigator may discover that the owner of the identified corporate entity is an additional corporate entity, necessitating the same process for the newly discovered corporate entity.
Many professional launderers and others involved in illicit finance intentionally layer ownership and 53 CTA,
Section 6402.
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.
55 Id.
54 FinCEN,
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financial transactions in order to reduce transparency of transactions. As it stands, it is a facially effective way to delay an investigation. 56 DAntuono acknowledged that these challenges may be even more stark for state, local, and Tribal law enforcement agencies that may not have the same resources as their federal counterparts to undertake long and costly investigations to identify the beneficial owners of these entities.57 During the testimony, he noted that requiring the disclosure of BOI by legal entities and the creation of a central BOI repository available to law enforcement and regulators could address these challenges.58
The process of obtaining BOI through grand jury subpoenas and other means can be time consuming and of limited utility in some cases. Grand jury subpoenas, for example, require an underlying grand jury investigation into a possible violation of law. In addition, the law enforcement officer or investigator must work with a prosecutors office, such as a U.S.
Attorneys Office, to open a grand jury investigation, obtain the grand jury subpoena, and issue it on behalf of the grand jury. The investigator also needs to determine the proper recipient of the subpoena and coordinate service, which raises additional complications in cases where there is excessive layering of corporate structures to hide the identity of the ultimate beneficial owners. In some cases, however, BOI still may not be attainable via grand jury subpoena because it does not exist. For example, because most states do not require the disclosure of BOI when forming or registering an entity, BOI cannot be obtained from the secretary of state or similar office. Furthermore, many states permit corporations to acquire property without disclosing BOI, and therefore BOI cannot be obtained from property records.
FinCENs existing regulatory tools also have significant limitations. The current CDD Rule, for example, requires that certain types of U.S. financial institutions identify and verify the beneficial owners of legal entity customers at the time those financial institutions open a new account for a legal entity customer,59 but the rule 56 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.
57 Id.
58 Id.
59 The CDD Rule NPRM contained a requirement that covered financial institutions conduct ongoing monitoring to maintain and update customer
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