The long-awaited U.S. Department of the Treasury's
The database introduces an additional step in the business setup process, mandating owners to disclose information about the beneficial ownership of their companies to enhance transparency.
While it marks
Currently, the nature of the database is straightforward — primarily requiring the name, date of birth and address of a business's ultimate beneficial owner, or UBO.
In theory, this is easily manageable for small businesses; however, there's still an opportunity to adapt the process for larger organizations, which are often exempt from reporting due to complex ownership structures.
Inspiration and object lessons for future steps in the process may come from databases like the U.K.'s Companies House, which started as a basic registry and recently came under similar UBO requirements. As such, this is an important first step for the U.S., with lawmakers and regulators already considering what comes next.
As such, I believe there are three potential areas for development, the first being to make the database more accessible to more stakeholders. Right now, the database's information is mainly confined to the Treasury and Fincen. In the future, wider accessibility would enable other crucial AML stakeholders, such as financial institutions, tech companies and investigators, to use the UBO details to enhance due diligence programs.
Despite advancements in AI for transaction monitoring, financial institutions share little in the way of fraud data, undermining efforts to combat crimes including check fraud.
Further inspiration can be taken from the EU – where the
Broader access to the registry would benefit effective risk management, particularly for detecting shell companies, as an alarming
The second area of improvement is to include more businesses in the reporting requirements. Currently, the legislation that created the UBO reporting requirements excludes more than 20 different business categories. One next step could be to bring these companies into the reporting requirement and assess and assign different risk levels to ownership based on the industry. Again, based on current regulations in the U.K. and EU, this approach recognizes that varying sectors pose distinct risks, necessitating tailored reporting requirements.
Such granularity would significantly enhance the database's ability to identify potential financial crimes.
And lastly, bundling enforcements and verification mechanisms would greatly improve the database. The evolution of regulatory measures will no doubt be a pivotal focus, emphasizing the potential effectiveness of the database. Adding regulatory teeth to complement the repository of information will enable decisive action to be taken if organizations fail to report.
As regulations progress, it would also be constructive for policymakers to explore options for independently verifying the information reported. This would enhance the integrity of the database, instilling confidence in the accuracy of UBO details and improving the system's overall effectiveness.
In terms of the road ahead, recent legal challenges, such as a March 2024 ruling in Alabama declaring the Corporate Transparency Act unconstitutional, underscore the fragility of the country's regulatory landscape — highlighting potential roadblocks in the government's collection of beneficial ownership data. While it has since been appealed and may be overturned, it signals the need for robust legal foundations at a national level to support the regulatory framework surrounding UBO reporting.
Overall, the U.S. company ownership database is an undeniably significant step in combating money laundering. As the waters around company ownership continue to darken, the process will surely be reiterated and adapted to increase efficacy and improve accessibility for a safer financial future.
