By Gary Kalman, Executive Director of Transparency International U.S. for GAB | The Global Anticorruption Blog.
The Financial Crimes Enforcement Network (“FinCEN”), the bureau charged with implementing our nation’s anti-money laundering laws, is underfunded. They do not have enough staff and significant staff turnover has left the bureau with less institutional knowledge and memory. On top of this, the agency has an Acting rather than permanent Director, undercutting its leaders’ ability to set a clear vision and direction for the bureau.
Let me explain.
Two years ago, Congress passed the Corporate Transparency Act (CTA), a landmark anti-money laundering law to address the rampant abuse of anonymously owned companies. In the lead up to passage, a mountain of evidence detailed how these structures were used to commit and cover up a variety of crimes from tax evasion to drug trafficking. Anonymous ownership allowed criminals to hide money laundering by human trafficking operations, corrupt officials, and terrorist networks. Today, sanctioned Russian oligarchs continue to live well on corruptly acquired billions hidden safely in secretly owned companies.
The CTA requires four pieces of readily available information – the owners’ names, addresses, dates of birth and government issued identification numbers (e.g., passports or drivers’ licenses). The purpose of the CTA is to prevent bad actors from hiding behind a secret corporate structure. Reporting for covered entities is mandatory with penalties for noncompliance.
FinCEN is responsible for drafting the rules to implement the CTA and creating a form for companies to report the previously mentioned required information. The rules can be complicated – and there are strong opinions from transparency supporters on the shortcomings of recently proposed rules regarding how users can access the database – but the data collection form should be a comparatively simple matter.
FinCEN must collect some basic information about the company, the owners, and the person filing the form. But FinCEN’s draft of this form includes a box that filers can check to claim, without explanation or justification (as if that should matter), that they do not know the information.
Imagine a city council approves posting stop lights on the busier streets in town and the Department of Motor Vehicles subsequently issues rules that claim red lights are optional. Or the IRS adds a box to tax forms that allows taxpayers to claim they do not know their income so they do not pay taxes. We all might enjoy the latter but it’s not legal – nor is it any way to fund a government.
This does not, on its face, appear to be an instance of competing opinions on the best way to implement an anti-money laundering law. Rather, it is more a subversion of the law and offers a free pass to criminals to avoid accountability. Elise Bean, a former staff director for the Permanent Subcommittee on Investigations under Senator Carl Levin, called the form the worst she had ever seen in her 40 years of government service.
There is no textual basis for FinCEN to offer a blanket exemption to companies who do not report because they say that they do not know the information. Even if FinCEN had the authority, the proposal offers no criteria for what it means to claim the ownership information is “unknown.” If agents hired to file simply do not ask their clients for the information, can they check the “unknown” box? That would be a truthful response. It is doubtful that FinCEN would consider that a faithful application of the CTA but then why include the option? At best, it creates confusion.
The proposal invites the possibility of increased liability for the reporting company and filer. Without any grounding in statute, covered entities who check the “unknown” box may well be in violation of the law. Filers would reasonably assume checking the box is a legal option. Prosecutors, judges and others charged with enforcing the law may not see it that way.
On a practical level, the vast majority of U.S. companies are small with simple structures. No one is confused about who owns the local pizza shop or hardware store. Entities that do have the resources to hire expensive legal help to create complex webs of companies also have the resources to name those who sit at the top of the corporate food chain.
It is hard to imagine how a rule writer could read the CTA and decide this was both permissible and wise. FinCEN must fix this problem before finalizing the form. If they do not, the 12-year fight to pass this fundamental reform to our anti-money laundering regime will have been in vain.
Public comments, for those interested in submitting, are due on March 20th. GAB readers should make their views known.