Greg Kilminster
Head of Product - Content
FinCEN’s push for corporate transparency: Levelling the playing field
At a speech at a Beneficial Ownership Information Reporting event, Financial Crimes Enforcement Network (FinCEN) Deputy Director Jimmy Kirby spoke about the vital role of beneficial ownership information in protecting the United States from illicit financial activity. In his address, Kirby highlighted the imperative to implement the Corporate Transparency Act (CTA) and its far-reaching implications for both national security and the integrity of the financial system.
FinCEN's broad mandate
Kirby reminded his audience of FinCEN’s purpose: responsible for enforcing regulations aimed at combating money laundering, terrorist financing, and other forms of illicit finance. These regulations require approximately 300,000 financial institutions to report suspicious activities, which FinCEN analyses to track illicit networks and support law enforcement investigations. The bureau also plays a critical role in issuing public alerts on priority risks and collaborating with both public and private sectors to enhance the regulatory landscape.
Kirby emphasised FinCEN’s dual focus: safeguarding national security and preserving the financial system's integrity. In particular, the bureau’s efforts include not only enforcing compliance but also holding noncompliant actors accountable through civil penalties. These actions are part of a broader initiative to implement the Anti-Money Laundering Act of 2020, including the CTA, which Kirby described as essential in preventing bad actors from exploiting US financial systems.
Unmasking hidden ownership
At the heart of Kirby's message was the necessity for small businesses to disclose their beneficial owners—the real individuals behind corporate entities. This transparency is critical, he argued, in combating financial crime. Anonymous corporate structures have long been exploited by criminals to launder money and hide illicit activities, creating significant challenges for law enforcement.
Kirby provided stark examples of how such anonymity has been used to devastating effect and how anonymous corporate structures not only facilitate crime but also undermine legitimate businesses by creating an uneven playing field.
The CTA, passed in 2021, is a legislative response to these issues. It requires many US companies to report beneficial ownership information to FinCEN, effectively stripping away the anonymity that has historically shielded criminal enterprises. This information is stored in a secure, non-public database, accessible only to authorised entities for law enforcement and national security purposes.
Reducing the burden on small businesses
Kirby was keen to reassure small business owners that compliance with the CTA is straightforward and not intended to be burdensome. He clarified that the CTA targets wilful violators of the law, not law-abiding small businesses. He added that the filing requirement is a one-time obligation unless there are changes in ownership. Kirby stressed that while the CTA’s requirements might seem daunting, they are crucial for levelling the playing field and ensuring that legitimate businesses are not disadvantaged by those who manipulate the system to conceal their identities.
Strengthening enforcement
Kirby also illustrated how beneficial ownership information could have streamlined previous high-profile enforcement actions. He referenced the case of Russian oligarch Suleiman Kerimov, who evaded US sanctions for years by hiding his assets behind layers of shell companies. The enforcement effort to untangle this complex network was extensive, involving years of investigation. Beneficial ownership reporting, Kirby argued, would have made such investigations more efficient, potentially curbing Kerimov's illicit activities sooner.
The CTA, Kirby stated, aims to preempt such evasions by providing law enforcement with the tools they need to identify and pursue bad actors more effectively. By reducing the anonymity that corporate structures can provide, the CTA will help law enforcement maintain an edge over those seeking to exploit the US financial system for illicit purposes.
The path forward
As the implementation of the CTA continues, Kirby urged small businesses to act promptly in complying with the new requirements. While most reports are not due until January 2025, FinCEN encourages early filing to ensure that businesses are fully compliant well before the deadline. New businesses, those created or registered in 2024, are required to file within 90 days, and starting in 2025, companies must file within 30 days of their creation or registration.
The CTA marks a significant step towards greater corporate transparency, aiming to foster a business environment where all companies, large or small, operate on a level playing field. As Kirby succinctly put it, "more transparency means fewer opportunities for bad actors to avoid detection, even when they think they’re hiding." This law, he implied, is not just about compliance but about contributing to the broader fight against financial crime, ultimately benefiting the entire business community.
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EBA publishes a no-action letter on the boundary between the banking book and the trading book
The European Banking Authority (EBA) has issued a no-action letter in response to the European Commission's Delegated Act, which delays the implementation of the revised market risk framework, the Fundamental Review of the Trading Book (FRTB), for an additional year until 1 January 2026. This decision was made in accordance with Article 461a of Regulation (EU) 2024/1623 (CRR3).
Key takeaways
In the no-action letter, the EBA recommends that competent authorities should not prioritise supervisory or enforcement action related to the amendments to the provisions setting the boundary between the banking and trading books or those defining internal risk transfers between books. The EBA emphasises that the operational complexities and fragmented implementation of the boundary framework create significant issues and could lead to a non-level playing field for global institutions.
Additionally, the EBA provides clarity on the supervisory benchmarking exercise and addresses technical questions and implementation issues arising from the postponement to achieve a harmonised implementation of the market risk framework across institutions during the postponement period.
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SEC imposes sanctions on investment adviser for undisclosed conflicts of interest
The US Securities and Exchange Commission (SEC) has announced that it has settled charges against Cadaret, Grant & Co., Inc., a New York-based registered investment adviser, for breaching its fiduciary duty by receiving third-party revenue without fully disclosing conflicts of interest.
The SEC's order found that Cadaret Grant violated the antifraud and compliance provisions of the Investment Advisers Act of 1940 and agreed to a cease-and-desist order, a censure, disgorgement of $4,213,351 plus prejudgment interest of $828,075, a civil penalty of $1,000,000, and undertakings including distributing the funds to harmed investors.
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