A bipartisan group of senators introduced a bill which would impose federal beneficial ownership reporting requirements for legal entities established under state law, intended to assist law enforcement in fighting money laundering and terrorist financing ("AML/CFT"). The bill, called the "Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activities in Shell Holdings Act ("ILLICIT CASH Act"), is co-sponsored by Senators Tom Cotton (R-AR), Mark R. Warner (D-VA), Doug Jones (D-AL), Mike Rounds (R-SD), Bob Menendez (D-NJ), John Kennedy (R-LA), Catherine Cortez Masto (D-NV), and Jerry Moran (R-KS).

If enacted into law, the ILLICIT CASH Act would:

  • require shell companies to (i) register the names of the natural persons who exercise control over or own 25 percent or more (i.e., beneficial owners) of the equity interests of a corporation, limited liability company, or other legal entity at the time of formation with the Treasury Department's Financial Crimes Enforcement Network ("FinCEN"), and (ii) update FinCEN within 90 days of any change in the beneficial ownership going forward;

  • amend the Bank Secrecy Act ("BSA") to clarify how financial institutions should create a risk-based AML/CFT program;

  • require coordination between financial institutions, regulators and law enforcement by enacting (i) a feedback loop and (ii) regular reporting requirements;

  • reduce information-sharing barriers between financial institutions and affiliates intended to the identification and tracking of suspicious activities;

  • create a new regulatory process to allow financial institutions to experiment with "innovative" approaches to AML/CFT programs;

  • authorize financial institutions to report low-level risks in bulk to law enforcement agencies; and

  • require a "tech symposium" in which regulators, financial institutions, law enforcement agencies, and tech companies would facilitate new technology aimed at improving BSA AML/CFT efforts.


Joseph Moreno

The legislation acknowledges in its preamble that de-risking efforts by banks have had the perverse effect of driving certain dark money further underground. FinCEN has been following a global trend of shining light on the identities of owners of shell companies, both with its 2016 bank Customer Due Diligence Rule (CDD Rule) and its 2018 reissuance and expansion of its global targeting orders (GTOs) relating to residential real estate. If passed, the ILLICIT CASH Act would push beneficial ownership requirements into a different universe by requiring the reporting to FinCEN of natural person owners even in the absence of a banking or real estate transaction. Simply the act of forming a shell company under state law would trigger a reporting obligation to FinCEN, and entities already formed will be required to report their beneficial ownership information within two years of passage. FinCEN would amass a vast database of beneficial ownership data for domestic shell companies which would be available to federal, state, and local law enforcement (and to international agencies in certain circumstances). While such efforts have shown promise but ultimately failed in the past, this legislation, and a similar bill advancing in the House of Representatives, may be the most likely serious reforms to U.S. efforts to fight the abusive use of shell companies to commit money laundering, terrorist financing, and other financial crimes.

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