On December 3, 2024, a nationwide preliminary injunction temporarily blocked enforcement of the Corporate Transparency Act (CTA), which has prompted several subsequent developments that have further affected the implementation timeline and caused uncertainty.
On December 5, the Department of Justice filed a notice of appeal. However, the Motions Panel of the Fifth Circuit issued a stay of the injunction on December 23, only for it to be vacated by the Merits Panel on December 26. As of December 27, the suspension of filing deadlines looms large over reporting companies, effectively allowing them to file beneficial ownership information (BOI) reports on a voluntary basis. This suspension has led to uncertainty regarding the future efficacy and enforcement of the CTA, leaving stakeholders watching for further legal clarifications or amendments to maintain the act's intended effects.
The CTA was created in an effort to deter illicit finance through shell companies or other opaque ownership structures by requiring businesses to file BOI about all individuals that directly or indirectly own or control their companies. Congress passed the act in 2021, and the law went into effect on January 1, 2024. The filing deadline for companies that existed before that date was January 1, 2025, while companies created in 2024 had 90 days to file.
In response to ongoing litigation, the Financial Crimes Enforcement Network (FinCEN) issued guidance regarding BOI filing:
“In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”
As part of the implementation of the CTA, FinCEN created the BOI registry to store filed BOI. FinCEN estimates more than 32 million entities will be subject to new reporting requirements. If implemented, this confidential BOI database will contain information such as beneficial owners’ names, dates of birth, addresses, and identifying numbers for documents like driver’s licenses or passports, subject to disclosure under specific circumstances to a limited category of recipients, including federal, state, local, and tribal law enforcement as well as foreign law enforcement, upon request.
The information in the BOI registry is a significant resource that could aid law enforcement investigations by providing information about the individual or network of individuals with ownership and control, i.e. decision-making authority, of an entity. The absence of a BOI database can impede law enforcement's ability to find ownership information quickly.
Without this centralized repository, the process of identifying the true owners of shell companies becomes labor-intensive, often requiring extensive research. This can lead to significant investigative delays, making it difficult for authorities to piece together the network of associations that might indicate criminal activity. The absence of a BOI registry can also undermine efforts to establish accountability and transparency, allowing those with fraudulent intentions to exploit financial systems without leaving easy-to-follow paper trails. As a result, this setback poses a formidable challenge not only to law enforcement agencies but also to the integrity of the financial sectors and international collaboration.
A BOI registry could help law enforcement obtain ownership information. Criminals use a multitude of techniques to intentionally obscure BOI from financial institutions, corporate partners, and law enforcement, which can include:
A BOI registry that could remove a level of criminal obfuscation and uncover beneficial ownership information could be valuable to both financial institutions and law enforcement. According to Secretary of the Treasury Janet Yellen, “Having a centralized database of beneficial ownership information will eliminate critical vulnerabilities in our financial system and allow us to tackle the scourge of illicit finance enabled by opaque corporate structures.” Beneficial ownership transparency created through a BOI registry could help raise financial institutions’ awareness of bad actors in their customer base and support them in avoiding onboarding bad actors who might have otherwise been hidden or overlooked.
The BOI registry could also help law enforcement investigate crimes including money laundering, terrorist financing, drug trafficking, and human trafficking. The most obvious way is that having greater transparency regarding beneficial ownership enables law enforcement and national security and intelligence agencies to better identify, monitor, and disrupt those responsible for crimes; follow money trails; and investigate and prosecute more quickly.
If the future of the CTA is uncertain, law enforcement agencies and financial institutions could lose a valuable tool in the fight against financial crime. If BOI is unavailable or inaccessible, law enforcement could spend more time investigating and filing subpoenas, and face delays in searching for, finding, and using ownership information for their investigations. Financial institutions might not have access to essential information about customers, which could lead to the possibility of onboarding bad actors that may have intentionally hidden ownership information.
There is, however, another option law enforcement and financial institutions can use to enter or find BOI. When financial institutions suspect illegal activity, FinCEN requires that they file a Suspicious Activity Report (SAR). SARs are forms used to report questionable activities and transactions, such as those associated with money laundering. They are often the output of money laundering or fraud investigations, and according to FinCEN, there were approximately 4.6 million SARs filed in 2023.
SARs are a Bank Secrecy Act requirement, enforced by FinCEN, and they give law enforcement, financial institutions, and regulators a way to flag and share information about ownership and suspicious activity. And again, having BOI and SARs readily available can save law enforcement officers the time they would otherwise spend investigating and obtaining subpoenas, and enable them to better identify, block, arrest, and prosecute criminals quickly and efficiently.
By providing greater transparency and accountability, BOI could be an additional tool to support law enforcement agencies and financial institutions in identifying and disrupting illicit activities. However, the unknown status of the implementation of the CTA and future reporting requirements for FinCEN’s BOI registry create uncertainty around what information will be available, and when.
In the meantime, Moody’s provides risk management tools that offer additional, relevant data to help financial institutions, corporates, and government departments clarify ownership structures and enhance transparency. These include an ultimate beneficial ownership solution that can help uncover BOI hidden in complex ownership or shareholder structures, and provide clarity about who you are doing business with. Moody’s Shell Company Indicator aids in identifying potentially fraudulent entities within an organization's business network.
Moody’s also offers an Entity Verification solution with a global database of company and corporate structure information, along with sanctions and adverse media data in a single solution that can assist in creating a more transparent and insightful picture of risk.
Moody’s screening database has more than 23 million risk profiles. This robust, global database – which receives up to 12,000 updates per day – provides detailed reports to help in screening and monitoring processes, so law enforcement, financial institutions, and other organizations can build a better understanding of who they are doing business with.
Moody’s also offers a comparative resource with standardized data on more than 550 million global entities. This easy to interpret resource enables customers to gain more transparency when dealing with complex ownership structures, providing beneficial ownership and control information, identity and verification tools, and financial strength metrics and forecasts.
If you would like more information about how Moody’s can help you access beneficial ownership data and better streamline your due diligence and investigations processes, please get in touch – we’d love to hear from you.