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The centerpiece of the CTA is the creation of a nationwide registry of legal entities' beneficial owners. To populate the registry, the Financial Crimes Enforcement Network, or Fincen, a Treasury bureau tasked with administering the Bank Secrecy Act, issued the reporting rule, which requires legal entities that are formed or registered to do business in the U.S. to file a report that includes information on their beneficial owners. The information in the registry will be made available by Fincen to national security, intelligence, law enforcement and other government agencies, regulators and, in some cases, financial institutions. A willful failure to comply is punishable through criminal and civil penalties.
As it presently stands, the reporting rule is unnecessarily complex and burdensome to administer. While large companies are carved out from the requirement, their subsidiaries are not unless they are wholly owned, or their ownership is entirely controlled by their parent. For companies with large numbers of subsidiaries or complex ownership structures, determining which subsidiaries are exempt has proven to be a challenge. Definitions of key terms, such as "ownership interest" and "substantial control," are at once complicated and ambiguous. While Fincen has made efforts to provide clarifying guidance, many gray areas remain.
Courts are litigating the question of whether Elon Musk has the authority to assign DOGE employees to positions that grant them access to sensitive data.
The reporting rule is also overly intrusive. By Fincen's own estimation, over 30 million businesses will be required to file reports, including many family owned businesses, homeowners' associations and subsidiaries of Fortune 500 companies. Since there is no upper limit on the number of beneficial owners, the number of individuals required to be reported as beneficial owners could easily exceed 100 million people. For each beneficial owner, the reporting company must provide that individual's identifying information and keep the information updated for as long as the company remains in existence.
All of this might be worthwhile if the information in the registry was highly useful to law enforcement, but it is not. Virtually all of the companies that will comply with the regulation will be law abiding and present zero risk of money laundering or terrorist financing. Meanwhile, it's a safe bet that cartels, organized crime and terrorist groups will not comply. The juice, as they say, is simply not worth the squeeze.
The CTA was a long time in the making. Efforts to create a nationwide database of beneficial owners go back to the mid-2000s. Besides bringing the U.S. in line with international anti-money-laundering standards, its objective was to disrupt the operations of criminal organizations that use shell companies to launder the proceeds of their illicit activities. These are laudable goals. Given the long history of attempting to establish a beneficial ownership registry, Treasury should take the time now to get it right, so that government agencies and financial institutions can get the information that they need to carry out their missions, without creating unnecessary burden or encroaching on individuals' privacy.
