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USA fluffs its companies database which it doesn't need anyway.

Nigel Morris-Cotterill

The USA is, at the best of times, very good at shouting that it's a leader in combating money laundering but it's all mouth and no trousers, most of the time.

Take, for example, the noise it has made about so-called "beneficial owners" of companies, a misuse of the term that goes back to, at least, 1980s Senate Hearings into the laundering of the proceeds of drugs trafficking and the use of shell and offshore companies. 40 years on, the USA has still done nothing about it and all the signs are that nothing is going to happen soon. ADDENDUM: Comment by Jim Richards.

Here's the irony: FinCEN doesn't need to build and maintain a database at all, especially as the law restricts access to the data it holds, so voiding any KYC benefit it may have across the world.

Let's explain why there is a problem. It's because the USA is far from a unified country except for a very limited number of things such as defence, the national road network and, to a degree, healthcare and, of course, tax. In fact, it often seems as if the biggest reason that the USA has a federal government is so that it can redistribute moneys around the states according to the current political wind. "If you want us to vote in a Federal candidate from your party, then promise us federal money for [pick your wish]"

It may be about 250 years since the not-so-United States was created but the States continue to maintain a far greater degree of control over what happens within their borders than most people realise. That's why some states have drugs laws that are diametrically opposed to others, why human trafficking cases are complicated because ages and forms of consent differ from state to state and, even, in some cases, from county to county or within cities district to district.

In the instant case we are concerned with the registration of companies. Each of the US states has its own companies registry. That's why, in the USA, you can have multiple companies all called, for example, Ajax, Inc. How that creates money laundering opportunities is a story for another day.

Each of those states has its own policy for what information must be collected. So if they want to issue bearer shares, they can. If they want to allow nominee directors, they can. And if they want to allow the filing of abbreviated accounts, hiding the detail of income and expenditure, they can. In short, if a state wants to allow the pseudo-anonymous ownership and control of companies and black-hole accounting, they can. And several do. In fact, it is common for States not to require share registers. That doesn't mean share-registers that are held by the state registrar of companies, it means there are no share registers at all. No one, including the Company secretary, necessarily knows who owns the shares.

It is to try to address this that the USA announced, in it's so-called "Anti-Money Laundering Act 2020" (which is a bundle of measures, each of which is also called an Act) and to at least appear that it was going to comply with the FATF's policy that members should create and maintain a register of the "ultimate beneficial owners" of companies.

Let's be clear: any financial institution that has not been identifying those who control private companies for at least the past 25 years have been a dangerous combination of lazy and stupid because it is a central plank of knowing your corporate customer that you know who pulls the strings and if you don't know your corporate customer how do you know if you are suspicious. There are, therefore, no excuses. But while that information has been sought, it has proved extremely difficult to verify. The reason for this is that, around the world, privacy of company ownership has long been a selling point of those jurisdictions offering tax efficiencies and other financial services. But while the USA has banged on about "offshore tax havens" it has quietly nurtured exactly the same position in several US states, notably Nevada, North Dakota and the real biggy Delaware where a significant proportion of the USA's biggest companies hide their corporate information insofar as it is not required to be disclosed to the Securities and Exchange Commission and, through that, the market.

So the USA needed to find a way to create a national, federal database, of company ownership. As all too often happens when Governments look at a problem, they start in the wrong place. They decided that the database should be attached to the country's Financial Intelligence Unit, the Financial Crimes Enforcement Network or FinCEN.

The entire policy for a FinCEN database is flawed. This is why.

FinCEN is part of the US Treasury. Treasury has all (at least all compliant which is the best one can hope for) companies registered for federal taxes.

All it needs to do is add fields to the next company tax return for disclosure of officers and controlling shareholders and wham: all done for the cost of adding a few more fields to the existing database.

That tax return, of course, is completed under pain of perjury (or whatever the US applies to ensure false documents are not submitted).

And better still, even the tiny additional cost all goes through the Treasury's budget as a development of existing data rather than a new project that requires additional funding to create and to maintain. So it's a tiny line item in thousands of lines of big numbers.

If accessing that data by FinCEN is currently prohibited, a one-line amendment buried in one of those hundred-page composite bundles of Acts that the USA is so fond of would probably go unnoticed.

And here's the sting: the proposed database will not be public. That means that only a very restricted range of persons will be able to interrogate it to find out who is behind a company, or who is declared to be behind a company.

Yet the best work in relation to combating financial crime is often done by the equivalent of the back-street car builders that Enzo Ferrari famously decried as "garagistas". That was until they started beating his factory-built Formula One cars. In the USA, the government is the equivalent of Ferrari, trying to maintain power by excluding the little people in case they do better (consistently, they do). It is likely that deals will, in due course, be done to allow giant data providers access - and then they will charge for information that is publicly owned because publicly owned does not mean in the public domain.

As the Appropriations Committee trundles through the Treasury documents, there is, as Jim Richards, a US financial crime consultant at RegTech Consulting, LLC, says, no increased funding for FinCEN and no application for moneys to build and maintain the database. As there are already shrill cries that the USA must raise its debt ceiling, the topic that usually sidelines all others and often ends up with budget hearings being binned to get time to argue over that or, as is the near-annual cry, the US will face its biggest crisis ever as government agencies shut down for lack of funds, there is little or no chance that any amendments will be made to increase the amount that Treasury gets for FinCEN.

Whoever drafted this daft legal provision must have known this; it's entirely foreseeable.

So here's the bottom line: the USA set itself up to fail to comply with the Financial Action Task Force's requirement for a transparent, national database of ownership of companies.

Addendum follows on the next page.

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