The global financial watchdog, the Financial Action Task Force (FATF), has revised advice it gave the US on its anti-money-laundering safeguards, thanks to a new beneficial ownership information (BOI) rule the US Treasury Department is implementing.

The FATF said the US is now “largely compliant” with a recommendation by the group that member countries create rules preventing criminals from using shell companies to hide dirty money.

The new rating comes as the Treasury works to implement the Corporate Transparency Act (CTA), the law approved in 2021 that requires companies to submit ownership information to the department. A few potential roadblocks to its work lie ahead.

Criticizing the law

Although the CTA received support from a coalition of large financial institutions and advocacy groups, small business associations have criticized the law and the registry, calling it overly burdensome and an infringement on the privacy of business owners.

A ruling earlier this month raised constitutional concerns about the federal government’s authority. A federal judge in Alabama said collecting ownership information violates the US constitution on the grounds that Congress exceeded its powers in enacting the law. The National Small Business Association had filed the lawsuit in November 2022.

It all comes as some privately held businesses and trusts struggle with how to best comply with the CTA, which requires them to submit ownership information to a new Treasury database. This is part of an effort by lawmakers to help stop money-laundering by rooting out the use of anonymous shell companies, track the flow of illicit money, and protect US national security interests.

A final rule implementing the beneficial ownership information reporting requirements of the CTA was issued in September 2022, and the regulations went into effect on January 1 this year. By mid-February, about a half million reports had been filed under the CTA, according to the department at the Treasury overseeing the program and maintaining the database of registered firms, the Financial Crimes Enforcement Network.

Businesses created before 2024 have until the end of the year to gather and file ownership information. Businesses created this year have 90 days to file. After this year, new businesses will have only 30 days to file.

FATF rating

The FATF issued its Follow-Up Report to note that the US had made progress in addressing some of the technical compliance deficiencies identified in a prior evaluation report, particularly to technical compliance deficiencies identified in relation to one of its areas of grading – Transparency and beneficial ownership of legal persons. Because of this progress, the United States has been upgraded from Non-Compliant to Largely Compliant for that recommendation, FATF said.

The FATF recommendations are meant to serve as the basis on which all countries should meet the shared objective of tackling money laundering, terrorist financing and the financing of proliferation.

FATF, also known by its French name, Groupe d’action financière, is an intergovernmental organization founded in 1989 on the initiative of the G7 to develop policies to combat money laundering. In 2001, its mandate was expanded to include terrorism financing and it currently has 40 members, with Russia’s membership currently suspended.

What to do now

The best bet for firms now is to continue gathering the information until we see the outcome of this litigation.

And many US businesses deem it a best practice in terms of their own risk profile to identify who hides behind the ownership of a company, trust or other legal structure, especially since many other US public companies already file such information with another federal agency, such as the SEC.

FinCEN has conducted a public outreach campaign aimed at educating and assisting businesses (especially smaller businesses) of their filing obligations.

Since each firm has different business structures, clients, operational processes and functions in different geographies, these various factors need to be taken into consideration while the clock is ticking on the rule’s possible implementation.