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United States

Transparency of Legal Entities (US0082)

Overview

At-a-Glance

Action Plan: United States Action Plan 2015-2017

Action Plan Cycle: 2015

Status: Inactive

Institutions

Lead Institution: The Department of the Treasury and the White House

Support Institution(s): NA

Policy Areas

Anti-Corruption, Beneficial Ownership, Private Sector

IRM Review

IRM Report: United States End-of-Term IRM Report 2015-2017, United States Mid-Term Report 2015-2017

Starred: No

Early Results: Did Not Change

Design i

Verifiable: No

Relevant to OGP Values: Not Relevant

Potential Impact:

Implementation i

Completion:

Description

The Administration is committed to increasing transparency of legal entities to combat high-level corruption, money laundering, and other financial crimes. The Department of the Treasury and the White House will continue engaging Congress to build bipartisan support to require that meaningful beneficial ownership information be disclosed at the time a company is formed. The Department of the Treasury will also work towards finalizing a rule to clarify customer due diligence requirements for U.S. financial institutions.

IRM Midterm Status Summary

IRM End of Term Status Summary

Commitment 30. Beneficial Ownership

Increase Transparency of Legal Entities Formed in the United States

The Administration is committed to increasing transparency of legal entities to combat high-level corruption, money laundering, and other financial crimes. The Department of the Treasury and the White House will continue engaging Congress to build bipartisan support to require that meaningful beneficial ownership information be disclosed at the time a company is formed. The Department of the Treasury will also work towards finalizing a rule to clarify customer due diligence requirements for U.S. financial institutions.

Responsible Institutions: The White House, Department of Treasury

Supporting Institution: Congress

Start Date: Not Specified ....... End Date: Not Specified

Commitment Aim

This commitment aimed to build bipartisan political support for mandatory disclosure of beneficial ownership information, and to finalize a rule clarifying customer due diligence requirements for US financial institutions.

Status

Midterm: Substantial

At the midterm, the government had made substantial progress on this commitment. The Treasury Department finalized a ”customer due diligence” rule [427] requiring financial institutions to identify the beneficial owners of companies that hold accounts with them in May 2016, to be implemented by 18 May 2018. The rule defines beneficial owners as “the individuals who own or control their legal entity customers.” [428] Despite progress in this area, congressional legislation requiring the disclosure of beneficial ownership information for all US-owned companies remained pending.

End of term: Complete

On 28 June 2017, Representative Carolyn B. Maloney (D-New York), along with two additional Democratic and Republication Representatives, co-sponsored the introduction of Bill H.R.3089—the “Corporate Transparency Act of 2017”—requiring the disclosure of beneficial ownership information at the time of company formation. Specifically, the bill aims “to ensure that persons who form corporations or limited liability companies in the United States disclose the beneficial owners of those corporations or limited liability companies, in order to prevent wrongdoers from exploiting United States corporations and limited liability companies for criminal gain, to assist law enforcement in detecting, preventing, and punishing terrorism, money laundering, and other misconduct involving United States corporations and limited liability companies, and for other purposes.” The section of the bill covering “Transparent Incorporation Practices” specifically requires companies (both new and existing) to disclose the names and addresses of beneficial owners. [429] Subject to certain exceptions, the bill defines beneficial owners as “a natural person who, directly or indirectly--(i) exercises substantial control over a corporation or limited liability company; or (ii) has a substantial interest in or receives substantial economic benefits from the assets of a corporation or limited liability company.” [430]

On 2 August 2017, Senators Ron Wyden (D-Oregon) and Marco Rubio (R-Florida) co-sponsored the introduction of a bill with an identical name (S.1717) into the US Senate that was referred to the Committee on Banking, Housing, and Urban Affairs. [431]

At the end of term, neither bill had been passed into law, and the latter was not introduced until after the close of the end-of-term evaluation period. However, for the purposes of evaluating this commitment, the IRM researcher assesses that the introduction of both bills effectively demonstrates bipartisan support for legislation requiring the disclosure of beneficial ownership. Progress on this commitment as written is therefore complete, [432] though it is worth reiterating that no bill requiring the disclosure of beneficial ownership had been passed into law at the time of writing.

Did It Open Government?

Access to Information: Did Not Change

Civic Participation: Did Not Change

Public Accountability: Did Not Change

This commitment did not open government due to its unclear relevance for the OGP values of open government. While greater reporting of beneficial ownership information could improve government oversight of financial entities, this information must be actively disclosed for there to be changes in the level of government openness.

Carried Forward?

At the time of writing, the US government had not published its fourth national action plan, so it is unclear if the commitment will be carried forward. This commitment should not be carried forward as written due to its unclear relevance to OGP values. Instead, the government could commit to creating a public register of beneficial ownership information gleaned from financial and other institutions. The disclosure of beneficial ownership information as a means to combat illicit finance remains an important issue in light of the roughly two million corporations and limited liability companies formed in the United States each year, as described in the text of both bills. The government should also continue efforts to examine how beneficial ownership disclosures may help to prevent such financial flows going forward.

[427] Somanader, Tanya. “President Obama’s Efforts on Financial Transparency and Anti-Corruption: What You Need to Know.” The While House Blog. 6 May 2016. http://bit.ly/2vNNiJ3. Consulted 25 June 2017. See also US Department of the Treasury Press Center. “Treasury Announces Key Regulations and Legislation to Counter Money Laundering and Corruption, Combat Tax Evasion.” Press Release from 5 May 2016. https://www.treasury.gov/press-center/press-releases/Pages/jl0451.aspx. Consulted 25 June 2017.

[428] US Department of Treasury Financial Crimes Enforcement Network. “Customer Due Diligence Requirements for Financial Institutions.” https://www.federalregister.gov/documents/2016/05/11/2016-10567/customer-due-diligence-requirements-for-financial-institutions. Consulted 29 September 2017. More formally, Section 1010.230(d) of the rule defines beneficial owners with reference to two core prongs, as follows: “each individual, if any, who directly or indirectly owned 25 percent of the equity interests of a legal entity customer (the ownership prong); and a single individual with significant responsibility to control, manage, or direct a legal entity customer, including an executive officer or senior manager or any other individual who regularly performs similar functions (the control prong).”

[429] H.R. 3089. “Corporate Transparency Act of 2017.” https://www.congress.gov/bill/115th-congress/house-bill/3089/text?format=txt. Consulted 22 September 2017. The original co-sponsors include Peter King (Republication), Gwen Moore (Democrat), Edward Royce (Republican), and Maxine Waters (Democrat).

[430] See Ibid. Section 3. “Definitions.” Consulted 29 September 2017.

[431] S.1717. “Corporate Transparency Act of 2017.” https://www.congress.gov/bill/115th-congress/senate-bill/1717/text. Consulted 22 September 2017. For a brief analysis of both bills, see https://www.gtlaw.com/en/insights/2017/8/new-bill-introduced-in-the-us-senate-to-require-the-disclosure-of-ultimate-beneficial. Consulted 22 September 2017.

[432] FACTCOALITION: Finance Accountability and Corporate Transparency. “FACT sheet: Differences in Beneficial Ownership Legislation.” 3 August 2017.  https://thefactcoalition.org/fact-sheet-differences-in-beneficial-ownership-legislation?utm_medium=policy-analysis/fact-sheets. Consulted 22 September 2017.

[433] During the pre-publication review of this report, the Department of the Interior (DOI) noted that the EITI Board actually scheduled the validation of the United States for April 2018, not 2017. Given that the commitment text is taken directly from the action plan, it cannot be revised. However, it is important to clarify how the validation process works. To achieve validation, a Board-appointed Independent Validator assesses the initial validation review of the International Secretariat and submits a report to the Board assessing the country’s compliance with each aspect of the Standard. Afterward, the Board’s Validation Committee makes a recommendation on the country’s compliance to the Board, which makes the ultimate determination on validation and provides recommendations for corrective actions. This final determination is therefore not a pass/fail decision, but rather a determination of the degree of progress in achieving compliance. DOI sent this information to the IRM via a comment during the pre-publication review of this report. The comment was submitted via e-mail on 30 April 2018.


Commitments

Open Government Partnership