Nowhere to Hide: The Crackdown on “Dirty Money”

New Regulations to Secure Beneficial Ownership of Entities.

In late March, FinCEN (Financial Crimes Enforcement Network) announced new regulations that will go into effect in January 2024.  These rules will require certain types of corporations, limited liability companies and other similar entities registered in the U.S. to report beneficial ownership information. In general, a beneficial owner is any individual who directly or indirectly exercises “substantial control” over the reporting company, or who directly or indirectly owns or controls 25 percent or more of the “ownership interests” of the reporting company.  If you don’t already know, FinCEN is the enforcement arm of the U.S. Treasury Department, and this new legislation falls under the Corporate Transparency Act (CTA).  It’s been building since 2021 when Congress, with bipartisan support, enacted the CTA to make it harder for bad actors to hide or benefit from their ill-gotten gains or “dirty money.” What does this all mean to your business?  We thought it would be beneficial to get out ahead of these new regulations and break down all you need to know.

Why the New Regulations?

In the U.S. it’s easy to open a business.  So easy that there are millions of small businesses out there.  Most of them are reputable.  These new regulations are targeting those companies or individuals going in the wrong direction.  For example, entities participating in money laundering, terrorist financing, corruption, tax fraud, and other illicit activity.  Fraudsters cheated the system during the COVID lockdowns.  The Paycheck Protection Program was an easy target and allowed these bad actors to create companies and apply for funds.  These new regulations will help to give a better understanding of who the beneficial owners are of these entities while also making the fraudulent businesses stand out and be easier for enforcement agencies to go after. 

How Will it Work?

Each company will be expected to collect and share their beneficial ownership information with FinCEN starting January 1, 2024. Existing corporations will have a full year to report their information.  Companies will report beneficial ownership information to FinCEN through a secure filing system available via FinCEN’s website. This system is currently being developed and will be launched prior to January 1, 2024.  The CTA and its implementing regulations will provide essential information to key agencies like law enforcement, national security agencies, and others to help prevent criminals, terrorists, proliferators, and corrupt oligarchs from hiding illicit money or other property in the U.S.  

FinCEN is one of the governing bodies that oversees payment facilitator regulations.  All payment processors including Segpay are already obliged to meet FinCEN’s regulations.  As a PayFac member we are required to have strong Anti-Money Laundering (AML) policies in place.  And as all merchants know, you are required to submit beneficial ownership information to your acquirers and to the card brands.  Any individual who exercises substantial control over the company or who owns or controls 25 percent or more interest in an adult program entity must disclose that information.  The change is that up to now, there have been very few U.S. states or territories that have required companies to disclose the identity of the beneficial owners.  The CTA authorizes FinCEN to collect this information and disclose it to authorized government agents and financial institutions.  This information will only be shared with key constituents like:

  • U.S. federal agencies engaged in national security, intelligence, and law enforcement agencies.
  • State, local, and tribal law enforcement agencies with court authorization.
  • The U.S. Department of Treasury.
  • Financial institutions using beneficial ownership information to conduct legally required customer due diligence, provided the financial institutions have their customer consent to retrieve the information.
  • Federal and state regulators assessing financial institutions for compliance with legally required customer due diligence obligations; and: 
  • Foreign law enforcement agencies and certain other foreign authorities who submit qualifying requests for the information through a U.S. Federal agency. 

Most likely acquirers will have access to this information too and will be required to validate merchant information they have collected relating to what is required to be submitted.  The good news is that this information will be locked down to select government and financial institutions and not readily available to the public.  This will give a level of protection to owners of adult websites, so they don’t become targets of unwarranted attacks from activist groups targeting the industry.

Security and Confidentiality is a Top Priority

Protecting the security and confidentiality of beneficial ownership is a top priority for FinCEN.  Federal law required FinCEN to implement protocols to safeguard beneficial ownership information, to build a secure IT system to store that information, and to establish processes and procedures to ensure that only authorized users can access beneficial ownership information for authorized purposes.  

Disclosure of beneficial ownership information is a global concern.  In 2018, the EU passed legislation that recognized the importance of corporate ownership transparency.  It emphasized that extending access to beneficial ownership registers to any member of the general public would help deter financial crime and preserve trust in the integrity of business transactions and the financial system.

Of course, not all individuals were happy with that legislation due to privacy concerns, and some took it to court and won.  Today not all EU member states require beneficial ownership registers.  The good news is that unlike the EU/UK regulations, the U.S. legislation does not make this information public, it will be private for financial institutions and other government agencies to check and help track down those bad actors.  While many of us are concerned about additional regulation, this one comes with some strong benefits in protecting the system from bad actors who have been able to hide in the shadows.  As always if you have nothing to hide, these new regulations won’t hurt your business.  They only make the system stronger and more secure.

Want to learn more about the regulations taking place and how it might affect your business?

 Reach out to us with your questions at [email protected] 

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