The Likelihood of AML Reform in the U.S.

Updated: Nov 14, 2019

In my prior blog post, I wrote about the recent passage (on a 249-173 vote) of the bipartisan Corporate Transparency Act of 2019 (H.R. 2513) by the House of Representatives. This bill is now up for a vote by the Senate. It will be interesting to see what happens as prior iterations of this bill, most recently the Corporate Transparency Act of 2017, have all failed to pass, even with bipartisan support as well as private and public backing.

Interestingly, a similar and also bipartisan bill, the Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings Act, with the clever acronym, ILLICIT CASH Act, was recently introduced in the Senate. Like the Corporate Transparency Act of 2019, the ILLICIT CASH Act would also require shell companies to disclose their beneficial owners.

International best practices require that beneficial ownership details on legal entities be maintained in a central registry. At the least, this information would be available to law enforcement, certain government agencies, such as tax authorities, as well as other financial institutions, for purposes of information sharing in order to report and combat crime. It is noteworthy that the U.S. currently lacks similar measures, particularly since the U.S. has historically led the way in passing legislation aimed at fighting corruption. It has done this by requiring greater transparency and compliance through laws having extraterritorial jurisdiction, such as the FCPA, FATCA, and even OFAC sanctions. But when it comes to combating the illicit use of anonymous entities, the U.S. has notably lagged behind other countries and regions, including the European Union, United Kingdom, Ukraine, and others.

In fact, due largely to the ease of formation and lack of requirements mandating documentation on beneficial owners in states such as Nevada, South Dakota, Wyoming, and Delaware, the U.S. has acquired a reputation as a financial secrecy haven. According to the Tax Justice Network’s latest Financial Secrecy Index, which ranks jurisdictions by their level of secrecy and amount of offshore financial activities, the U.S. comes in as the second greatest contributor to global financial secrecy.

Perhaps one reason the U.S. hasn’t been able to enact transparency reform is because incorporation is governed by state-level requirements. However, both of the recently proposed bills would level the playing field among the states by making the reporting of beneficial ownership information a federal requirement. With the passage of the EU’s 5th Anti-Money Laundering Directive, and mounting international pressure, all eyes are on the U.S. Undoubtedly, the proposed bills will undergo revision. Even then, they are not certain to pass. Nonetheless, they signal a strong step toward the global transparency movement and it’s highly likely that some version of AML reform in the U.S. is on the foreseeable horizon.

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