U.S. Treasury faces a wave of criticism over faltering push to unmask anonymous companies and track dirty money

A landmark U.S. reform to stamp out anonymous companies that hide dirty money is in danger of effectively dying at the hands of the federal agency tasked with implementing it, advocates of the effort warn.

For months, the U.S. Treasury Department’s quest to build a database of company owners — which would lift the veil on millions of abuse-prone shell companies in the U.S. — has been beset by delays and multiplying disagreements.

The database itself stemmed from a rare moment in American policy life in which pretty much everyone agreed that there was a problem that needed to be solved. A group of lawmakers, industry representatives and advocates united to push through the Corporate Transparency Act, which was signed into law in early 2021. But that’s where the harmony ended.

In the years since, multiple flashpoints have flared, stemming from the often mundane process of officials drafting rules to implement the database. The same people who celebrated the passing of the legislation are now calling key aspects of the law’s implementation “misguided,” “fatal,” and “disastrous.”

The arguments center on core, complex questions over how the database will be operated, including who will be able to access the data, how rigorous the collection will be and whether the data will be verified.

“Not getting this right undermines anti-corruption efforts not just in the U.S. but has far-reaching impacts on the global fight against corruption,” Lakshmi Kumar, Policy Director of Global Financial Integrity, told ICIJ. Advocates for more transparency have consistently flagged the U.S. financial system as opaque and vulnerable to money laundering, and say the creation of a registry of company owners is crucial for combating illicit cash.

In September 2020, ICIJ, BuzzFeed News and more than 100 media partners published the FinCEN Files, exposing more than $2 trillion in suspicious transactions flowing through the global financial system via U.S.-based banks. Citing the public outcry that followed, U.S. lawmakers advanced a landmark anti-money-laundering bill named the Anti-Money Laundering Act, which included the Corporate Transparency Act. The law tasked the U.S. Treasury’s Financial Crimes Enforcement Network — FinCEN — with setting up the new database and writing the detailed regulations that would undergird the system.

Kumar attributes the bumpy rollout, in part, to FinCEN being badly underfunded and understaffed. The most recent point of contention arose after the Treasury published a draft version of the questionnaire in January that companies would use to report their ownership; the draft form would have allowed companies to say company ownership is “unknown” — apparently giving anonymous firms an easy way to opt out of the system.

“I can’t imagine what was going through the minds of the people drafting this form,” Gary Kalman, the director of Transparency International’s U.S. office, told ICIJ. “This is a roadmap for bad guys to avoid passing on their information.”

This concern prompted Democrats and Republicans in both the House and Senate to send a joint letter to the Treasury Department last week warning that the draft questionnaire’s box would “degrade” the law by providing criminals and other bad actors an “escape hatch.” The letter, dated April 3, not only criticized FinCEN form as undermining the database but also asserted that the agency’s move was contradicting the law it was tasked with implementing.

Late last month, FinCEN acting director Himamauli Das said that the draft questionnaire would be rewritten. A Treasury spokesperson wrote in an email to ICIJ that “the ‘unknown’ checkbox was not intended to provide any exception to the reporting obligation.” The Treasury official told ICIJ that the agency intends to make “clear that the reporting company is required to ensure that reports are correct and complete and all information is submitted.”

Advocates say they are cautiously optimistic that FinCEN’s revised form will remove the portion allowing companies to opt out of providing ownership data. But a more difficult challenge for advocates may lie in FinCEN’s proposed rules that limit who can access the database — rules that critics say could deal a devastating blow to the database’s workability.

The Corporate Transparency Act already excludes the general public from accessing the database, leaving the information restricted to law enforcement and financial firms. Although this limited access was a compromise that transparency-minded advocates grudgingly accepted, now even the banking and law enforcement agencies could struggle to access the data.

The access rules, released in December, state that local law enforcement officials would have to secure permission from a court each time they accessed a company’s beneficial ownership data. This would be a significant hindrance to investigators who often work on fast-moving cases and who, in many instances, would need to examine numerous company ownership records. Requiring “local law enforcement to obtain a court order goes against the legislative intent of the CTA,” said Kumar.

An added irony, advocates point out, is that other countries, including the United Kingdom, make this same type of company ownership data openly accessible to the general public via an easy-to-use online browser.

Source: ICIJ

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