The CTA was developed in 2021 as a way to restrict the use of shell companies to conceal flows of illicit money. With the Act, eligible businesses were originally required to file information of any owner who either has a major influence on the reporting company’s decisions or operations, owns at least 25% of the company’s shares, or has a similar level of control over the company’s equity.

The CTA would apply to nearly 34 million businesses and would exclude many from the requirement including those businesses with more than $5 million in gross sales and more than 20 full-time employees. Businesses and owners that didn’t comply with the reporting rules could face fines of up to $591 a day. They could also face up to $10,000 in criminal fines and up to two years in prison.

The Fifth Circuit granted the injunction to put the law on hold in the case of Texas Top Cop Shop v. Garlandwhere Texas Top argued that to have such a rule in place would be to unconstitutionally invade small-business owners and associations. The court said that it has paused enforcement of the reporting requirement in order to “preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments.”

The Financial Crimes Enforcement Network clarified the court’s ruling by putting out of the following statement: “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.”

Before the Fifth Cicuit’s ruling, FincCEN announced that it has extended the deadline to file to January 13^thhowever due to the court’s ruling, it remains clear that such a deadline will not be enforced at that time. “While it is not known how long the injunction will remain in effect, the case is calendared for oral argument en banc on March 25, 2025, so we expect that the injunction will be effective at least through March,” Daniel Stipano, a partner at law firm Davis Polk & Wardwell, wrote in an email.

FinCEN said that it still believes that the law is constitutional and will continue to pursue an appeal. As a result, the rule may ultimately be placed into effect which will require companies to gather information of its owners. Therefore, while business owners may be in favor of invalidating the CTA, it may make sense to continue to gather ownership information.  

Jacob Horowitz is a contributing editor at Compliance Chief 360°

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Since implementing the Anti-Money Laundering Act of 2020, FinCEN’s highest priority has been achieving successful implementation of the beneficial ownership reporting requirements. These requirements obligate a company to disclose all individuals who formed the company. This includes any individuals who have a lot of say or control over the company through another unaffiliated company.

Companies are required to disclose the name, date of birth, and home address of every beneficial owner, along with submitting identification like a passport or driver’s license. However, FinCEN exempts certain “large” companies from the BOI reporting obligations, defining them as those with over 20 full-time employees in the U.S. and minimum gross receipts or sales of $5 million, among other criteria.

The purpose of this requirement is to filter out shell companies that are used primarily for money-laundering. These shell corporations usually consist of smaller companies with a lesser amount of financial resources. As a result of the fact that these companies are not usually current with recent regulations, these reporting requirements have received a significant amount of criticism from Congress. During the congressional hearing, Financial Services Chairman Patrick McHenry  referenced a survey conducted by the National Federation of Independent Business, revealing that 90% of small businesses are unaware of their newly imposed reporting obligations.

Andre Gacki, the head of FinCEN, addressed these criticisms in the recent congressional hearing. “I want to clearly state that FinCEN has no interest in hitting small businesses with excessive fines or penalties. The CTA penalizes willful violations of the law, and we are not seeking to take “gotcha” enforcement actions,” Gacki said. “Looking ahead, we will continue our efforts to promote compliance with the reporting requirements and ensure broad awareness of the safe, secure, and easy-to-use filing system.”

FinCEN’s Outreach Efforts

FinCEN has dedicated much time and effort into actively engaging in outreach to smaller companies in order to notify them of the BIO reporting requirements. “We have held outreach events with a wide range of small business advocacy associations, corporate service providers, third party trade associations, industry trade associations, and good governance organizations,” Gacki said her congressional hearing statement. “We have also opened channels to directly engage with small businesses and other users actively filing reports.”

FinCEN’s website also includes a direct link to their Contact Center, so users can submit their questions about filing or let the agency know of any issues they encounter with submitting their report. It is also using a ChatBot to provide businesses with an interactive tool to quickly answer any questions they may have.

Although small companies are inherently not aware of the current BOI reporting requirements, FinCEN is trying its best to notify each and every company of such rules in order to truly filter out those that have only been formed for the purpose of money-laundering and other financial crimes.

As the head of FinCEN said to the House of Representatives in the recent congressional hearing, “We know that the vast majority of the small businesses that will be impacted by this reporting requirement are law-abiding businesses that want to do the right thing, and we also know that many of them may not be familiar with FinCEN… This is why outreach has been and will continue to be a primary focus of our efforts.”

FinCEN now requires companies to complete their BOI requirements by January 1, 2025. For those who violate the requirements, they will face “civil fines of up to $500 per day that the violation continues, criminal fines of up to $10,000, and up to two years of imprisonment “according to FinCEN.  

Jacob Horowitz is a contributing editor at Compliance Chief 360°

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The final rule, which implements the registration and reporting requirements of the Corporate Transparency Act (CTA), will require “tens of millions” of companies doing business in the United States to report information about their beneficial owners to FinCEN.

“Designed to protect U.S. national security and strengthen the integrity and transparency of the U.S. financial system, the rule will help to stop criminal actors, including oligarchs, kleptocrats, drug traffickers, human traffickers, and those who would use anonymous shell companies to hide their illicit proceeds,” FinCEN said.

“For too long, it has been far too easy for criminals, Russian oligarchs, and other bad actors to fund their illicit activity by hiding and moving money through anonymous shell companies and other corporate structures right here in the United States,” said Acting FinCEN Director Himamauli Das. “This final rule is a significant step forward in our efforts to support national security, intelligence, and law enforcement agencies in their work to curb illicit activities.”

Beneficial owner defined
Under the rule, a beneficial owner includes any individual who exercises “substantial control” over the reporting company or owns or controls at least 25 percent of the ownership interests of a reporting company.

An individual exercises “substantial control” if such individual serves as a senior officer (excluding the corporate secretary and treasurer); has authority to appoint or remove any senior officer or a majority of the board; or directs or has substantial influence over “important decisions made by” the reporting company.

Under the rule, five categories of individuals are exempt from the definition of beneficial owner:

• minors;
• nominees, intermediaries, custodians, and agents;
• certain employees who are not senior officers,
• heirs with a future interest in the company; and
• certain creditors.

Reporting companies
The final rule describes two distinct types of reporting companies that must file reports with FinCEN: domestic reporting companies and foreign reporting companies. Domestic reporting companies include any entity that is created by the filing of a document with a secretary of state or similar office in any U.S. state or tribal jurisdiction. A foreign reporting company is any entity created under the law of a foreign jurisdiction that is registered to do business in any U.S. state or tribal jurisdiction.

Exempt companies
The final rule exempts 23 categories of entities from the definition of “reporting companies,” including “money services businesses” and “large operating companies.” The final rule defines “large operating companies” as those that have an operating presence at a physical office within the United States; have more than 20 full-time employees in the United States; and that have more than $5 million in gross receipts or sales from sources inside the United States. Responding to some comments submitted, FinCEN declined to allow companies to consolidate employee headcount across affiliated entities for purposes of meeting the 20 full-time employee threshold.

Additionally, under the final rule, a “subsidiary exemption” exists for entities that are owned entirely by one or more specified exempt entities.

Reports due
Reporting companies created or registered before Jan. 1, 2024, will have until Jan. 1, 2025, to file their initial reports, while reporting companies created or registered after Jan. 1, 2024, will have 30 days after their creation or registration to file their initial reports. “Once the initial report has been filed, both existing and new reporting companies will have to file updates within 30 days of a change in their beneficial ownership information,” FinCEN said.

The final rule clarifies that a person “fails to report” complete or updated beneficial ownership information to FinCEN if the “person either causes the failure or is a senior officer of the entity at the time of the failure.” FinCEN said in the final rule it believes that “the approach of holding individuals in these specific positions of authority responsible for ensuring that the information filed with FinCEN is correct and up-to-date provides additional clarity and certainty and appropriately rests that obligation with those in charge of an entity.” 

Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.

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Among the $7 billion in laundered money, over $455 million was stolen by the Lazarus Group, a Democratic People’s Republic of Korea (DPRK) state-sponsored hacking group sanctioned by the United States in 2019 in the largest known virtual currency heist to date (worth almost $620 million).

As a virtual currency mixer, Tornado Cash “operates on the Ethereum blockchain and indiscriminately facilitates anonymous transactions by obfuscating their origin, destination, and counterparties, with no attempt to determine their origin,” OFAC stated in its press release. “Tornado receives a variety of transactions and mixes them together before transmitting them to their individual recipients.”

“Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks,” said Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian Nelson. “Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them.”

Tornado Cash has been added to OFAC’s Specially Designated Nationals (SDN) and Blocked Persons List, meaning all property and interests in property associated with Tornado Cash in the United States or in the possession or control of U.S. persons is blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.

“All transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons are prohibited unless authorized by a general or specific license issued by OFAC, or exempt,” OFAC stated.

Broader Industry Threat
“While most virtual currency activity is licit, it can be used for illicit activity, including sanctions evasion through mixers, peer-to-peer exchangers, darknet markets, and exchanges,” OFAC stated. “This includes the facilitation of heists, ransomware schemes, fraud, and other cybercrimes.”

According to the Treasury Department’s “2022 National Money Laundering Risk Assessment” report, criminals have increased their use of anonymity-enhancing technologies, including mixers, to help hide the movement or origin of funds.

OFAC’s action against Tornado Cash was taken pursuant to Executive Order 13694, as amended. The action follows OFAC’s first-ever sanctions, announced May 6, against a virtual currency mixer, Blender.io (Blender). In that case, Blender was used by the DPRK “to support its malicious cyber activities and money-laundering of stolen virtual currency,” including the processing of $20.5 million in illicit proceeds stolen by the Lazarus Group, according to OFAC.

OFAC’s enforcement activity targeting virtual currency mixers is being conducted in concert with other local and foreign enforcement agencies. For example, the Financial Crimes Enforcement Network (FinCEN) in October 2020 assessed a $60 million civil money penalty against the owner and operator of virtual currency mixer Helix for BSA violations—FinCEN’s first ever enforcement action against a bitcoin mixer.

Sanctions Compliance Takeaways
From a sanctions compliance standpoint, compliance officers in the virtual-currency industry play a critical role in complying with Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) and sanctions obligations to prevent sanctioned persons and other illicit actors from exploiting virtual currency to undermine U.S foreign policy and national security interests.

“As part of that effort, the industry should take a risk-based approach to assess the risk associated with different virtual currency services, implement measures to mitigate risks, and address the challenges anonymizing features can present to compliance with AML/CFT obligations,” OFAC stated.

As the Tornado Cash action and others like it demonstrates, OFAC stated, “mixers should, in general, be considered a high risk by virtual currency firms, which should only process transactions if they have appropriate controls in place to prevent mixers from being used to launder illicit proceeds.” 

Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.

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In a joint statement released on June 29, the multilateral taskforce stated it has also “seized, frozen, or detained yachts and other vessels owned, held, or controlled by sanctioned Russians—including the Amadea, the Tango, the Amore Vero, the Rahil, and the Phi.” Additionally, REPO has “seized or frozen luxury real estate owned, held, or controlled by sanctioned Russians.”

REPO credited its collaboration with the private sector in promoting effective sanctions implementation. “Financial institutions and other entities required to comply with both sanctions and anti-money laundering and countering the financing of terrorism regulations have helped to identify and immobilize assets subject to sanctions and worked to prevent Russia from evading sanctions,” the task force stated. “Where available, REPO members have relied on the use of registries—such as bank account and beneficial ownership registries.”

Multinational Task Force
The REPO Task Force, established in February, consists of Finance Ministry and Justice or Home Ministry in each of the following member jurisdictions: Australia, Canada, Germany, France, Italy, Japan, the United Kingdom, and the European Commission. It is also supported by the United States’ Financial Crimes Enforcement Network (FinCEN). It was launched following Russia’s unprovoked invasion of Ukraine begun on February 24.

As task force members, each participating country has committed to using their respective authorities in concert with other appropriate ministries to collect and share information to take concrete actions, including sanctions, asset freezing, civil and criminal asset seizure, and criminal prosecution.

“Where appropriate and possible, REPO members are undertaking efforts to update or expand and implement their respective legal frameworks that enable the freezing, seizure, forfeiture or disposal of assets, for example within criminal law,” the task force said in its latest joint statement.

Other nations are also cooperating with the sanctions on Russian oligarchs. Fiji, for example, helped seize the $300 million yacht of sanctioned Russian oligarch Suleiman Kerimov. Fijian law enforcement executed a seizure warrant freezing the Motor Yacht Amadea, a 348-foot luxury vessel owned by sanctioned Russian oligarch Kerimov. Fijian law enforcement, with the support and assistance of the FBI, acted pursuant to a mutual legal assistance request from the U.S. Department of Justice following issuance of a seizure warrant from the U.S. District Court for the District of Columbia, which found that the Amadea is subject to forfeiture based on probable cause of violations of U.S. law, including the International Emergency Economic Powers Act (IEEPA), money laundering and conspiracy.

Ongoing Efforts
“In the coming months, REPO members will continue to track Russian sanctioned assets and prevent sanctioned Russians from undermining the measures that REPO members have jointly imposed,” the joint statement continued. “Together, we will ensure that our sanctions continue to impose costs on Russia for its unprovoked and continuing aggression in Ukraine and to prevent funds and economic resources from being provided to or for the benefit of designated persons.”

“As we undertake this work, we are seeking to maximize the impact of sanctions on designated persons and entities, while guarding against spillover that affects global commodities markets and food supplies, which Russia has disrupted by choosing and continuing to wage war.”

In March, FinCEN issued an alert to financial institutions on the importance of identifying and quickly reporting suspicious transactions involving real estate, luxury goods, and other high-value assets of sanctioned Russian elites and their proxies. The Alert provides select red flags to assist financial institutions in identifying suspicious transactions, and reminds financial institutions of their Bank Secrecy Act reporting obligations. 

Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.

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