The United States has stepped up its anti-money-laundering practices after taking some heat.

In the Financial Action Task Force's 2016 mutual evaluation, the group found: Lack of timely access to adequate, accurate and current beneficial ownership (BO) information remained one of the fundamental gaps in the US. [1]

As a result, the United States recently passed the Corporate Transparency Act. It aims to increase transparency on ultimate beneficial ownership disclosure to law enforcement, the Financial Crimes Enforcement Network (FINCEN).

New and existing corporations and LLPs must now disclose beneficial ownership information to FINCEN. Corporations are also responsible for disclosing changes from the previous year and can be subject to civil and criminal action for submitting incorrect information.

In alignment with FINCEN's CDD rules, financial institutions are obliged to identify and verify the identity of any individual who owns 25% or more of a legal entity and an individual who controls the legal entity.

The new US act requires minimum disclosure, including:

• Name
• Date of birth
• Current address
• Driver's license or non-expired passport number of the beneficial owner

Technology can help corporations disclose and transfer beneficial ownership information to FINCEN to comply with the new requirements.

Uploading and storing encrypted data and documents that allow for exchange of information and reporting of changes as part of an auditable platform can simplify and streamline the beneficial ownership disclosure process. (See more below.).

we will nonetheless have to wait until implementation takes place to see how FINCEN will handle the storage and data security of all private data being disclosed.

The new act excludes a list of corporations from disclosing their beneficial ownership information to FINCEN. These include, but are not limited to:

• Publicly listed companies
• Regulated insurance companies
• Other regulated financial institutions that are subject to other disclosure requirements
• US businesses with more than 20 employees and $5m in gross sales receipts

While the act aims to increase transparency of beneficial ownership disclosure, it also limits its access with one main purpose - helping FINCEN's enforcement. In Europe, the creation of registers has taken a different direction and access to beneficial ownership information and data privacy of individual information are key.

UBO registries in EU:

The new US act attempts to align with other global initiatives, such as the ultimate beneficial ownership (UBO) registries developed in Europe with the implementation of the 4th and 5th AMLD. Such regimes are, however, different in the United States and Europe.

US entities are required to disclosed information directly to law enforcement. In Europe, member estates are responsible for creating a centralised registry to share information with law enforcement, but registers are also accessible by third parties.

The 4th AMLD established for the first time the requirement for member estates to create in-country UBO central registries. But the directive left to each member estate determination as to how to implement them. Access to the registry information was left to government authorities with a "legitimate interest."

The 5th AMLD introduced further enhancements and expanded access to third parties. The Directive establishes that member states shall ensure that the information on the beneficial ownership is accessible "in all cases to competent authorities, obliged entities, within the framework of customer due diligence and member of the general public that are permitted to access at least the name, the month and year of birth and the country of residence and nationality of the beneficial owner as well as the beneficial interest held."[2]

The Directive also includes trusts and similar arrangements as obliged entities to disclose beneficial ownership information, however access to trust information is limited to individuals with legitimate interest on the trust. The Directive leaves to each member estate determination of the level of transparency disclosure for this typology, taking into consideration privacy laws that protect individuals' rights.

Member states were required to set up beneficial ownership registers for corporate and other legal entities by 10 January 2020 and for trusts and similar legal arrangements by 10 March 2020. Central registers should be interconnected via the European Central Platform by 10 March 2021.

To comply with the new requirements, member states have enacted national laws to introduce the definition of ultimate beneficial ownerships to include any natural person(s) who ultimately owns or controls at least 25% of an entity.

In the United Kingdom, the government introduced in 2016 the People with Significant Control (PSC) register to include information about individuals who own or control companies, including their name, month and year of birth, nationality and details of their interest in the company. UK companies (except listed companies) need to declare this information when issuing their annual confirmation statement to the corporate registry. This information is free to access under companies' houses.

Other countries, such as Germany, have created UBO registers not available to third parties. However, the requirement to disclose ownership information was already established for companies to disclose through their companies/trade register and is publicly available.

Technology can help companies to disclose their requirements:

The new disclosure rules can be tricky. But, as discussed above, digital tools can help streamline the process.

IHS Markit supports the industry's largest community of financial institutions - including investment managers and brokers - by exchanging and managing documentation and regulatory data centrally through the Counterparty Manager platform. This supports the fulfilment of KYC, credit, legal and tax obligations.

Users of the platform can create representations of their entities (including identification information and activity status), centrally upload documents and permission information to counterparties with which they have a relationship for that entity.

[1] FATF mutual evaluation on United States' measures to combat money laundering and terrorist financing, 2016; https://www.fatf-gafi.org/publications/mutualevaluations/documents/mer-united-states-2016.html

[2] Article 30, paragraph 4, 5th AMLD:

https://eurlex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CELEX:32018L0843&from=EN

Posted 19 November 2020 by Marisol Lopez Mellado, Global Head, Entity Insights, S&P Global Market Intelligence

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.