What’s in it for business? The US case: Lessons from private sector and civil society advocacy for beneficial ownership transparency reforms

Beneficial ownership transparency in the United States

Beneficial ownership is a relatively new area of policy reform. At the global level, the very first attempts to regulate the disclosure, access, and use of information about the real owners of companies go back to standards and mechanisms developed by the FATF and the Organisation for Economic Co-operation and Development (OECD) in the 1990s and early 2000s. These aimed to ensure specific actors would have information on the individuals who own and control companies in order to prevent them from being misused for money laundering and in an effort to tackle predicate crimes. International convergence around this issue continues to grow with, for example, the 2012 FATF Standard’s Recommendations 24 and 25 starting to set international standards, including a definition of a beneficial owner as a “natural person who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted” and “who exercise ultimate effective control over a legal person or arrangement”. [14]

Following the 11 September 2001 attacks in the US, countering the financing of terrorism was brought within the scope of the FATF’s aims. The USA PATRIOT Act of 2001 first required financial institutions to collect BO information for any new bank account obtained by non-US legal entities and some individuals. [15] The Financial Crimes Enforcement Network (FinCEN) extended this requirement to any legal entity as part of the 2016 Customer Due Diligence Requirements for Financial Institutions. [16]

However, relying on banks – which are obliged to collect and verify BO information from customers – and the companies themselves to provide BO information to authorities upon request proved problematic, as the information was patchy and obtaining it took time and could tip-off those under investigation. US federal policy makers began to understand the lack of access to high-quality BO information as a national security issue, highlighted by a number of US Government Accountability Office studies pointing to a range of issues with US defence procurement, due to a lack of information on suppliers. [17] After the CTA was signed into law in 2021, the US began implementing a central BO register to obtain BO information through the up-front disclosure by companies to authorities.

The US focus on national security differs from the aims in other countries, where progress on BOT has been driven by a range of policy purposes, including fighting corruption and creating an enabling business environment. [18] Whilst the latter was not a core focus in the US, business interests have played an important role in first blocking, then catalysing the passing of new US regulations on beneficial ownership, which shows the importance of private sector actors in the development of BO reforms. Initial resistance was due in part to a deeply entrenched discourse present in the US political landscape, which stated that any new regulation related to companies’ activity and information would necessarily have a negative impact on business interests. Most of the journey of the US private sector support for BOT revolved around debunking this idea.

Next page: The journey of the US private sector in supporting beneficial ownership transparency reforms