## _cr15174

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### Introduction and purpose
- Targeted review of U.S. Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) measures within the Financial Sector Assessment Program (FSAP).
- Scope: Focus mainly on progress enhancing transparency of and access to beneficial ownership (BO) information of U.S. companies and trusts at federal and state levels.
- Not an assessment: "This discussion is not, in any way, an evaluation or assessment of the U.S. AML/CFT system." A comprehensive FATF mutual evaluation begins June 1, 2015; results to be made public in 2016.
- Note prepared by Ke Chen, Stephen Dawe, and Gianluca Esposito (IMF Legal Department).

### General overview of the U.S. AML/CFT framework
- Money laundering first criminalized in 1986.
- The U.S. legal and institutional framework is mature with many federal and state agencies involved.
- FATF 2006 finding: United States had implemented an AML/CFT system "broadly in line with the international standard" but with significant shortcomings.
- Key 2006 shortcomings:
  - Customer due diligence (CDD) requirements—deficiencies in requirements to identify beneficial owners.
  - Availability of ownership information about corporations and trusts.
  - Requirements applicable to certain designated non-financial businesses and professions (DNFBPs).
- Follow-up: The U.S. 2010 FSAP Technical Note reported some strengthening but lack of progress on key deficiencies. FATF third-round follow-up required reporting on progress; follow-up was postponed pending the U.S. fourth-round mutual evaluation beginning June 1, 2015.

### Transparency and beneficial ownership of U.S. legal persons and arrangements — background and risks
- Main entity types: corporations (including limited liability companies), partnerships, and trusts.
- Scale: "More than 30 million legal persons and arrangements exist, but the precise figure is unknown."
- Foreign ownership: Corporations/trusts can be owned/controlled by non-residents; extent unknown.
- ML/FT misuse concerns:
  - 2006 MER: formation of shell companies within certain states identified as "a serious cause for concern."
  - Corporations used to open bank accounts without revealing owners and to place, layer, and integrate illicit proceeds.
  - Law enforcement reviewed ML-related indictments from 2006 to 2012 and found many cases involving the use of corporations.
- Trusts:
  - Generally considered by most authorities to pose low ML/FT risks; trust companies subject to the Bank Secrecy Act.
  - Lawyers and accountants who assist with setting up trusts are unregulated for AML/CFT.
  - Some authorities believe ML/FT risks posed by trusts are not necessarily lower.

### Developments since the 2006 MER and persistent deficiencies
- Legislative and policy developments:
  - U.S. AML/CFT regime significantly strengthened since 1997 and since the prior MER, including enhanced legislation subjecting most deposit-taking institutions to AML/CFT requirements.
  - Draft regulations produced to strengthen FIs’ obligations to identify and verify beneficial owners.
  - Policy intentions announced to improve authorities’ access to BO and control information of U.S. corporations.
- Tax reporting developments:
  - Since 2010, U.S. tax authorities began requiring information that includes some BO information from legal entities and trusts applying for an Employer Identification Number (EIN).
- Persistent gaps and concerns:
  - The regime "has yet to address deficiencies identified in the most recent FATF mutual evaluation report (MER) regarding ownership information for U.S. corporations and trusts."
  - Progress to enhance transparency of legal persons is "progressing slowly."
  - Law enforcement access: LEAs rely largely on investigative powers and techniques to obtain BO information; this approach, "while often successful cannot always ensure timely access to current BO information of all U.S. corporations."
  - Consequences include curtailed effectiveness in pursuing individuals who misuse U.S. corporations to launder proceeds generated domestically and abroad and to trace and recover illicit assets.

### Key numeric findings and factual points (preserved verbatim)
- FATF mutual evaluation schedule: United States will undergo a complete mutual evaluation by the Financial Action Task Force (FATF) beginning June 1, 2015; results to be made public in 2016.
- U.S. fourth-round mutual evaluation: onsite mission planned for early 2016, plenary consideration scheduled for October 2016 (as noted in background).
- Tax gap estimate: "The authorities estimated the U.S. net tax gap to be around $450 billion in 2006, excluding international tax evasion, and tax crimes for state taxes."
- Entity counts and timeframes:
  - "More than 30 million legal persons and arrangements exist, but the precise figure is unknown."
  - Review of indictments covered 2006 to 2012.
- In each of the last two fiscal years approximately 4.5 million corporations and trusts were issued with an EIN.

### Findings from the 2006 MER (specifics preserved)
- FIs were not required to identify beneficial owners, including in relation to corporations and trusts, in accordance with FATF CDD requirements except in limited specific circumstances (i.e. correspondent banking and private banking for non-U.S. clients).
- United States rated noncompliant with FATF Recommendation concerning transparency and BO of corporations and legal arrangements.
- Investigative powers found generally sound and widely used, but no measures ensured adequate, accurate, and timely BO information accessible to competent authorities.
- Senate testimonies highlighted lack of transparency in the corporate formation process inhibiting law enforcement.
- Minimal BO information on trusts could be obtained or accessed by competent authorities in a timely fashion.

### Regulatory, administrative, and procedural developments (exact items)
- 2010: IRS revised form SS-4 to require the name of a “responsible party” and the Taxpayer Identification Number of the responsible party for all EIN applications.
- March 2010: Issuance of multi-agency guidance titled “Guidance on Obtaining and Retaining Beneficial Ownership Information.”
- August 4, 2014: Notice of Proposed Rule Making (NPRM), “Customer Due Diligence Requirements for Financial Institutions” (79 F.R. 45151 (Aug. 4, 2014)); comment period closed on October 3, 2014.
- White House 2015 and 2016 budget proposals included initiatives that, according to the authorities, would:
  - Allow LEAs access to SS-4 information in certain circumstances.
  - Impose AML/CFT obligations on company service providers.
- Limitations noted:
  - The SS-4 “responsible party” concept may not be consistent with the FATF definition of beneficial owner.
  - Proposed sharing via IRS would be limited to domestic ML/FT investigations and would not make BO information available to FIs or DNFBPs.
  - NPRM coverage excludes several sectors (insurance, money or value transfer services, foreign exchange bureaus, investment advisers, commodity trading advisors, DNFBPs including TCSPs).
  - Proposed verification of beneficial owners places heavy reliance on customers’ own certification; the certification form may not fully capture the control component of the beneficial owner definition.

### Collecting, accessing, and sharing BO information — practices and limitations
- Corporate formation and registry practices:
  - Formation, operation, and dissolution of U.S. corporations are governed by state law; basic information collected by state corporation registries and generally not verified.
  - All information collected is maintained at state corporation registries and is mostly publicly available.
  - Trusts are not required to be registered except for filing certain information with the IRS.
- State reporting variation (in terms of FATF Recommendation 24 basic information):
  - Fourteen states impose no requirement to report the identities of either shareholders or managers: Arkansas, Mississippi, Colorado, Missouri, Delaware, New York, Indiana, Ohio, Iowa, Oklahoma, Maryland, Pennsylvania, Michigan, and Virginia.
  - Eight states and the District of Columbia require a limited liability company to report the identities of managers only: Massachusetts, Tennessee, North Carolina, Vermont, Rhode Island, Wisconsin, South Carolina, the District of Columbia, and South Dakota.
  - Twenty-four states require a limited liability company to report the identities of shareholders, but only when the limited liability company lacks managers: California, Nebraska, Connecticut, Nevada, Florida, New Hampshire, Georgia, New Jersey, Hawaii, New Mexico, Idaho, North Dakota, Illinois, Oregon, Kentucky, Texas, Louisiana, Utah, Maine, Washington, Minnesota, West Virginia, Montana, and Wyoming.
  - Only four states require a limited liability company to always report the identities of shareholders: Alabama, Arizona, Alaska, and Kansas.
  - Authorities indicated that in periodic reports 45 states require corporations to collect the names and addresses of officers and/or directors, and 32 states require limited liability corporations to collect the names and addresses of members or managers.
- Employer Identification Number (EIN) and IRS collection:
  - Some BO information may be collected by the IRS when entities apply for an EIN using form SS-4; question 7A requests “name of responsible party.”
  - For all entities except publicly traded companies, “responsible party” is defined as the person who has a level of control over, or entitlement to, the funds or assets that enables the individual to control, manage, or direct the entity and the disposition of its funds and assets. The ability to fund the entity or entitlement alone without authority to control does not make an individual a responsible party.
  - EIN is mandatory for an entity if:
    - (i) it has employees; or
    - (ii) it has a qualified retirement plan; or
    - (iii) it files returns for employment taxes, excise taxes or income taxes; or
    - (iv) it opens an account with a bank, securities, or futures firm.
  - Trusts, except grantor trusts, are generally required to apply for an EIN and file annual tax returns; grantor trusts’ tax return information is reported as part of the grantor’s own income tax return.
  - It is common for corporations to be established to hold assets and not require an EIN if they do not maintain a FI account, employ personnel, or file other tax documents.
- Financial institutions’ obligations and practice:
  - FIs are obliged to collect BO information of corporations and trusts only in limited cases; this has not fundamentally changed since the 2006 MER because the NPRM rules have not been enacted.
  - In practice, many FIs collect BO information in certain circumstances based on regulatory guidance.
  - Depository institutions are required to have enhanced due diligence when opening higher-risk accounts and procedures suggested include collecting BO information, but this is not a requirement.
  - Regarding trusts, FIs generally identify and verify the identity of the trust and normally identify and verify the identity of the trustee; guidance indicates in certain revocable trust circumstances banks may need information about settlor, grantor, trustee, or other persons with authority to direct the trustee.

### Access to BO information by LEAs and operational concerns
- Sources and access mechanisms:
  - SARs filed with FinCEN mentioned by LEAs as an occasional source of BO information; in the absence of FI obligations to identify BO, BO information in SARs may be limited.
  - IRS Criminal Investigation Division has direct access to form SS-4 information when investigating potential criminal violations of the Internal Revenue Code.
  - All LEAs, including the IRS, need a court order to access SS-4 information when investigating ML or any non-tax violation; authorities indicated obtaining such court orders was relatively straightforward.
  - Non-IRS LEAs supplement available information with investigative techniques and judicial processes (grand jury subpoenas, search warrants, administrative subpoenas) to obtain BO from FIs and corporations; mutual legal assistance may be necessary and can be challenging or slow.
  - Most LEAs believe they regularly obtain BO information using investigative techniques and cited Liberty Reserve as a complex and successful example.
- Limitations and operational concerns:
  - Investigative techniques may not always guarantee timely access by non-IRS LEAs to BO information; processes can be time consuming and resource-intensive depending on case circumstances and could require greater resources.
  - LEAs indicated they would welcome legal reforms enabling easier access to IRS information and introducing obligations for FIs and DNFBPs to collect BO information.

### Adequacy, currency, and accuracy of BO information
- BO information obtainable by LEAs is not guaranteed to be adequate, current, or accurate.
- Availability of BO information held by the IRS and FIs requires some activity or other basis for a requirement to obtain an EIN or an account with a FI respectively.
- Corporations with no U.S.-reportable profits or direct use of the U.S. financial system or otherwise required to obtain an EIN escape U.S. obligations to provide required information on “responsible party” to the IRS, and their BO information therefore cannot be obtained unless the corporation is under a criminal investigation.
- Many LEAs indicated that they have subscription services to private sector databases that consolidate all public information in the state registries.
- Investigative techniques (including search warrants for email and other records) and use of mutual legal assistance have been important in obtaining BO information in complex cases (example: Liberty Reserve investigation).

### International cooperation and implications
- The ease of establishing U.S. corporations, coupled with their perceived credibility internationally, creates potential for misuse of U.S. corporations for laundering proceeds of foreign predicate crimes.
- Foreign persons may create a U.S. corporation and use it for laundering proceeds of criminal activities committed outside the United States, including foreign tax evasion.
- Limitations on BO availability and authorities’ inability to initiate investigations on behalf of foreign counterparts in some circumstances may hamper international cooperation.
- For tax crimes (but not laundering of proceeds from tax crimes), the IRS can exchange BO information on U.S. corporations that have an EIN with foreign tax authorities based on bilateral tax agreements.
- For enquiries relating to U.S.-based corporations without an EIN and for non-tax related foreign requests for assistance in ML investigations, U.S. authorities are not able to respond in identifying and exchanging BO information unless they can initiate a criminal investigation in the United States that successfully discovers the BO of the subject corporation(s).
- The Organization for Economic Co-operation and Development’s Global Forum on Transparency and Exchange of Information for Tax Purposes has found the United States to be not fully compliant with its principles in relation to availability of information on ownership.

### Main recommendations and priorities (as summarized)
- Expeditiously take steps to ensure that beneficial ownership information of U.S. corporations and trusts can be accessed by the authorities in a timely manner, in particular by:
  - i. requiring that such information is collected and maintained by either registries of corporations and trusts, agents serving corporations and trusts, or corporations and trusts, and is accessible by competent authorities in a timely manner; and
  - ii. requiring all FIs and DNFBPs, in particular trust and company service providers (TCSPs), including lawyers and accountants providing such services, to identify the beneficial owners of corporations and trusts and take reasonable measures to verify those identities.
- Make serious tax crimes predicate crimes to ML.
- Priorities assigned in Table 1:
  - First recommendation (expeditious access to BO information): High
  - Make serious tax crimes predicate crimes to ML: High
  - (An additional recommendation item is marked Medium in Table 1 but its text is not reproduced elsewhere in this excerpt.)

*Source: _cr15174*

### EXECUTIVE SUMMARY ______________________________________________________________________________ 4

### EXECUTIVE SUMMARY

### Introduction
- Purpose: Targeted review of U.S. Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) measures within the Financial Sector Assessment Program (FSAP).
- Scope: Focused mainly on progress enhancing transparency of and access to beneficial ownership (BO) information of U.S. companies and trusts at federal and state levels.
- Not an assessment: "This discussion is not, in any way, an evaluation or assessment of the U.S. AML/CFT system." A comprehensive FATF mutual evaluation begins June 1, 2015; results to be made public in 2016.
- Preparation: Note prepared by Ke Chen, Stephen Dawe, and Gianluca Esposito (IMF Legal Department).

### General overview of the U.S. AML/CFT framework
- Evolution: First criminalized money laundering in 1986; mature legal and institutional framework with many federal and state agencies involved.
- FATF 2006 finding: United States had implemented an AML/CFT system "broadly in line with the international standard" but with significant shortcomings.
- Key 2006 shortcomings:
  - Customer due diligence (CDD) requirements—deficiencies in requirements to identify beneficial owners.
  - Availability of ownership information about corporations and trusts.
  - Requirements applicable to certain designated non-financial businesses and professions (DNFBPs).
- Follow-up: The U.S. 2010 FSAP Technical Note reported some strengthening but lack of progress on key deficiencies. FATF third-round follow-up required reporting on progress; follow-up was postponed pending the U.S. fourth-round mutual evaluation beginning June 1, 2015.

### Transparency and beneficial ownership of U.S. legal persons and arrangements — background and risk
- Main entity types: corporations (including limited liability companies), partnerships, and trusts.
- Scale: "More than 30 million legal persons and arrangements exist, but the precise figure is unknown."
- Foreign ownership: Corporations/trusts can be owned/controlled by non-residents; extent unknown.
- ML/FT misuse concerns:
  - 2006 MER: formation of shell companies within certain states identified as "a serious cause for concern."
  - Law enforcement agrees majority of corporations are legitimate, but some are misused for ML (including laundering proceeds from foreign offenses).
  - Corporations used to open bank accounts without revealing owners and to place, layer, and integrate illicit proceeds.
  - Authorities reviewed ML-related indictments from 2006 to 2012 and found many cases involving the use of corporations.
- Trusts:
  - Generally considered by most authorities to pose low ML/FT risks; trust companies subject to the Bank Secrecy Act.
  - Lawyers and accountants who assist with setting up trusts are unregulated for AML/CFT.
  - Some authorities believe ML/FT risks posed by trusts are not necessarily lower; mission lacked further details.

### Developments since the 2006 MER and current deficiencies
- Legislative and policy developments:
  - U.S. AML/CFT regime significantly strengthened since 1997 and since the prior MER, including enhanced legislation subjecting most deposit-taking institutions to AML/CFT requirements.
  - Draft regulations produced to strengthen FIs’ obligations to identify and verify beneficial owners.
  - Policy intentions announced to improve authorities’ access to BO and control information of U.S. corporations.
- Tax reporting developments:
  - Since 2010, U.S. tax authorities began requiring information that includes some BO information from legal entities and trusts applying for an Employer Identification Number (EIN), which is required when they have income, employees, or must file documents with the Internal Revenue Service (IRS) or open an account with an FI.
- Persistent gaps and concerns:
  - The U.S. AML/CFT legal and institutional framework "has yet to address deficiencies identified in the most recent FATF mutual evaluation report (MER) regarding ownership information for U.S. corporations and trusts."
  - Progress to enhance transparency of legal persons is "progressing slowly."
  - Even when intended changes are completed, they "may not completely address all of the deficiencies cited in the last FATF mutual evaluation report."
  - Law enforcement access: LEAs rely largely on investigative powers and techniques to obtain BO information; this approach, "while often successful cannot always ensure timely access to current BO information of all U.S. corporations."
  - Consequences: Inability to access accurate BO information directly from states, FIs or agents serving corporations or trusts may curtail effectiveness in pursuing individuals who misuse U.S. corporations to launder proceeds generated domestically and abroad and to trace and recover illicit assets. This includes laundering associated with taxes evaded in the United States and abroad by U.S. citizens and foreigners respectively.

### Key numeric findings and factual points preserved verbatim
- FATF mutual evaluation schedule: United States will undergo a complete mutual evaluation by the Financial Action Task Force (FATF) beginning June 1, 2015; results to be made public in 2016.
- U.S. fourth-round mutual evaluation: onsite mission planned for early 2016, plenary consideration scheduled for October 2016 (as noted in background).
- Tax gap estimate: "The authorities estimated the U.S. net tax gap to be around $450 billion in 2006, excluding international tax evasion, and tax crimes for state taxes."
- Entity counts and timeframes:
  - "More than 30 million legal persons and arrangements exist, but the precise figure is unknown."
  - Review of indictments covered 2006 to 2012.
- Legal milestones and references:
  - Money laundering first criminalized in 1986.
  - Previous FSAP TN: United States: Technical Note on Anti-Money Laundering/Combating the Financing of Terrorism, IMF Country Report No. 10/253, July 2010.

### Main recommendations for AML/CFT (as summarized in Table 1)
- Expeditiously take steps to ensure that beneficial ownership information of U.S. corporations and trusts can be accessed by the authorities in a timely manner, in particular by:
  - i. requiring that such information is collected and maintained by either registries of corporations and trusts, agents serving corporations and trusts, or corporations and trusts, and is accessible by competent authorities in a timely manner; and
  - ii. requiring all FIs and DNFBPs, in particular trust and company service providers (TCSPs), including lawyers and accountants providing such services, to identify the beneficial owners of corporations and trusts and take reasonable measures to verify those identities.
- Make serious tax crimes predicate crimes to ML.
- Priorities assigned in Table 1:
  - First recommendation (expeditious access to BO information): High
  - Make serious tax crimes predicate crimes to ML: High
  - (An additional recommendation item is marked Medium in Table 1 but its text is not reproduced elsewhere in this excerpt.)

*INTERNATIONAL MONETARY FUND — EXECUTIVE SUMMARY*

### 15.      The 2006 MER found that FIs were not required to identify beneficial owners,

### _cr15174 - 15.      The 2006 MER found that FIs were not required to identify beneficial owners,

### Findings from the 2006 MER
- FIs were not required to identify beneficial owners, including in relation to corporations and trusts, in accordance with FATF CDD requirements except in limited specific circumstances (i.e. correspondent banking and private banking for non-U.S. clients).
- The United States was rated noncompliant with the FATF Recommendation concerning transparency and BO of corporations. Evaluators found:
  - Investigative powers are generally sound and widely used.
  - There were no measures to ensure adequate, accurate, and timely information on the BO of corporations that can be obtained or accessed in a timely fashion by competent authorities.
  - Senate testimonies highlighted lack of transparency in the corporate formation process inhibiting law enforcement.
- The United States was rated noncompliant with the FATF Recommendation concerning transparency and BO of legal arrangements. Evaluators found:
  - Investigative powers are generally sound and widely used.
  - Minimal information on BO of trusts could be obtained or accessed by competent authorities in a timely fashion.

### Developments since the 2006 MER
- Regulatory and administrative actions undertaken (but without substantive resolution of the identified transparency gaps):
  - 2010: IRS revised form SS-4 to require the name of a “responsible party” and the Taxpayer Identification Number of the responsible party for all EIN applications.
  - White House 2015 and 2016 budget proposals included an initiative that, according to the authorities, would:
    - Allow LEAs access to SS-4 information in certain circumstances.
    - Impose AML/CFT obligations on company service providers.
  - March 2010: Issuance of multi-agency guidance titled “Guidance on Obtaining and Retaining Beneficial Ownership Information” to clarify and consolidate “existing regulatory expectations” for obtaining BO information for “certain accounts and customer relationships”.
  - August 4, 2014: Notice of Proposed Rule Making (NPRM), “Customer Due Diligence Requirements for Financial Institutions” (79 F.R. 45151 (Aug. 4, 2014)) issued for public comment.
- Limitations and unresolved issues with these efforts:
  - The SS-4 “responsible party” concept may not be consistent with the FATF definition of beneficial owner; the definition focuses on control and does not cover ownership in all cases.
  - The White House initiative limitations include:
    - IRS would only be able to share information to help with domestic and not foreign-based ML/FT investigations.
    - The proposal does not make BO information available to FIs or DNFBPs, and thus does not assist them in verifying BO of corporate customers and commercial trusts.
    - The proposal would not extend AML/CFT obligations to other services offered by lawyers and accountants beyond company formation services as required by the FATF Recommendations.
  - The NPRM, as drafted, is not considered fully in line with the FATF standard according to a preliminary FATF Secretariat analysis:
    - Proposed rules clarify and strengthen CDD requirements for banks, brokers or dealers in securities, mutual funds, futures commission merchants, and introducing brokers in commodities, including to identify and collect BO information on owners and managers of legal entity customers, subject to certain exemptions.
    - Insurance companies or brokers, money or value transfer services, foreign exchange bureaus, investment advisers and commodity trading advisors, and DNFBPs, including TCSPs, are not covered by the proposed requirements.
    - The proposed obligation to verify identity of beneficial owners places heavy reliance on customers’ own certification.
    - The “certification of beneficial owners” form introduced as part of the NPRM appears not to fully capture the control component of the proposed beneficial owner definition; for control it focuses on those who manage the corporation and does not require names of those who control the corporation through other means unless such control flows from owning 25 percent or more of the corporation’s equity.
  - The NPRM rules have not been finalized; comment period closed on October 3, 2014. Timing and form of any final rules are unclear; significant changes could require additional public comment periods. There is no estimate for when the budget announcements will be turned into concrete legislative proposals.

### Collecting, accessing, and sharing information about beneficial ownership
- Corporate formation and registry practices:
  - Formation, operation, and dissolution of U.S. corporations are governed by state law; basic information is collected and maintained by state corporation registries.
  - Filed corporate governance documents (articles/certificate/charter) are reviewed to meet statutory requirements, but information is generally not verified.
  - All information collected is maintained at state corporation registries and is mostly publicly available.
  - Trusts are not required to be registered except for filing certain information with the IRS.
- State reporting variation (in terms of FATF Recommendation 24 basic information):
  - Fourteen states impose no requirement to report the identities of either shareholders or managers: (Arkansas, Mississippi, Colorado, Missouri, Delaware, New York, Indiana, Ohio, Iowa, Oklahoma, Maryland, Pennsylvania, Michigan, and Virginia).
  - Eight states and the District of Columbia require a limited liability company to report the identities of managers only: (Massachusetts, Tennessee, North Carolina, Vermont, Rhode Island, Wisconsin, South Carolina, the District of Columbia, and South Dakota).
  - Twenty-four states require a limited liability company to report the identities of shareholders, but only when the limited liability company lacks managers: (California, Nebraska, Connecticut, Nevada, Florida, New Hampshire, Georgia, New Jersey, Hawaii, New Mexico, Idaho, North Dakota, Illinois, Oregon, Kentucky, Texas, Louisiana, Utah, Maine, Washington, Minnesota, West Virginia, Montana, and Wyoming).
  - Only four states require a limited liability company to always report the identities of shareholders: (Alabama, Arizona, Alaska, and Kansas).
  - Authorities indicated that in periodic reports 45 states require corporations to collect the names and addresses of officers and/or directors, and 32 states require limited liability corporations to collect the names and addresses of members or managers.
- Employer Identification Number (EIN) and IRS collection:
  - Some BO information may be collected by the IRS when entities apply for an EIN using form SS-4; question 7A requests “name of responsible party.”
  - For all entities except publicly traded companies, “responsible party” is defined as the person who has a level of control over, or entitlement to, the funds or assets that enables the individual to control, manage, or direct the entity and the disposition of its funds and assets. The ability to fund the entity or entitlement alone without authority to control does not make an individual a responsible party.
  - EIN is mandatory for an entity if:
    - (i) it has employees; or
    - (ii) it has a qualified retirement plan; or
    - (iii) it files returns for employment taxes, excise taxes or income taxes; or
    - (iv) it opens an account with a bank, securities, or futures firm.
  - In each of the last two fiscal years approximately 4.5 million corporations and trusts were issued with an EIN.
  - Trusts, except grantor trusts, are generally required to apply for an EIN and file annual tax returns; grantor trusts’ tax return information is reported as part of the grantor’s own income tax return.
  - It is common for corporations to be established to hold assets and not require an EIN if they do not maintain a FI account, employ personnel, or file other tax documents.
- Financial institutions’ obligations and practice:
  - FIs are obliged to collect BO information of corporations and trusts only in limited cases; this has not fundamentally changed since the 2006 MER because the NPRM rules have not been enacted.
  - In practice, many FIs collect BO information in certain circumstances based on regulatory guidance.
  - Depository institutions are required to have enhanced due diligence when opening higher-risk accounts and procedures suggested include collecting BO information, but this is not a requirement.
  - Domestic business entities (including corporations and trusts) are identified as examples of customers that may pose specific risks, with shell companies identified as presenting heightened risks.
  - Regarding trusts, authorities stated FIs generally identify and verify the identity of the trust and normally identify and verify the identity of the trustee; guidance indicates in certain revocable trust circumstances banks may need information about settlor, grantor, trustee, or other persons with authority to direct the trustee.

### Access to BO information by LEAs and other authorities
- Sources and access mechanisms:
  - SARs filed with FinCEN were mentioned by LEAs as an occasional source of BO information; in the absence of FI obligations to identify BO, BO information in SARs may be limited.
  - IRS Criminal Investigation Division has direct access to form SS-4 information when investigating potential criminal violations of the Internal Revenue Code.
  - All LEAs, including the IRS, need a court order to access SS-4 information when investigating ML or any non-tax violation; authorities indicated obtaining such court orders was relatively straightforward.
  - Non-IRS LEAs supplement available information with investigative techniques and judicial processes (grand jury subpoenas, search warrants, administrative subpoenas) to obtain BO from FIs and corporations; mutual legal assistance may be necessary and can be challenging or slow.
  - Most LEAs believe they regularly obtain BO information using investigative techniques and cited Liberty Reserve as a complex and successful example; staff noted difficulty in assessing how systematic or representative successful cases are.
  - For trusts, trustees are generally required by state common and statutory laws to maintain names of any other trustee, any protector, and all beneficiaries, which can be obtained by LEAs through judicial processes.
- Limitations and operational concerns:
  - Investigative techniques may not always guarantee timely access by non-IRS LEAs to BO information; processes can be time consuming and resource-intensive depending on case circumstances and could require greater resources.
  - LEAs indicated they would welcome legal reforms enabling easier access to IRS information and introducing obligations for FIs and DNFBPs to collect BO information.

### Key exact dates, references, and figures cited
- 2006 MER
- 2010 (IRS revision of form SS-4; March 2010 multi-agency guidance)
- 2014 (NPRM issued August 4, 2014; 79 F.R. 45151 (Aug. 4, 2014); comment period closed on October 3, 2014)
- White House 2015 and 2016 budget proposals
- Fourteen states, eight states and the District of Columbia, twenty-four states, four states — specific state lists preserved above
- 45 states require corporations to collect names/addresses of officers and/or directors; 32 states require LLCs to collect names/addresses of members or managers
- Approximately 4.5 million corporations and trusts were issued with an EIN in each of the last two fiscal years
- 31 USC § 5318(l); 31 CFR § 1020.220; 31 CFR § 1023.220; 31 CFR § 1024.220; 31 CFR § 1026.220; 31 CFR § 1022.410
- Federal Financial Institutions Examination Manual, 2014; Federal Financial Institutions Examination Council, AML/CFT Exam Manual, 2014

*UNITED STATES  
INTERNATIONAL MONETARY FUND*

### 27.      Moreover, the adequacy, currency, and accuracy of the BO information that could be

### _cr15174 - 27.      Moreover, the adequacy, currency, and accuracy of the BO information that could be

### Adequacy, currency, and accuracy of BO information (paragraphs 27 and context)
- BO information obtainable by LEAs is not guaranteed to be adequate, current, or accurate.
- Availability of BO information held by the IRS and FIs requires some activity or other basis for a requirement to obtain an EIN or an account with a FI respectively.
- BO information that is collected on revised IRS Form SS-4 is available to law enforcement, and/or can often be obtained through investigative techniques when there is an ongoing criminal investigation, including from FIs if a business relationship exists.
- Corporations with no U.S.-reportable profits or direct use of the U.S. financial system or otherwise required to obtain an EIN escape U.S. obligations to provide required information on “responsible party” to the IRS, and their BO information therefore cannot be obtained unless the corporation is under a criminal investigation.
- Many LEAs indicated that they have subscription services to private sector databases that consolidate all public information in the state registries.40
- Investigative techniques (including search warrants for email and other records) and use of mutual legal assistance have been important in obtaining BO information in complex cases (example: Liberty Reserve investigation).42,43

### International cooperation (paragraphs 28–29 and related findings)
- The relative ease of establishing U.S. corporations, coupled with their perceived credibility internationally, creates potential for misuse of U.S. corporations for laundering proceeds of foreign predicate crimes.28,44
- Foreign persons may create a U.S. corporation and use it for laundering proceeds of criminal activities committed outside the United States, including foreign tax evasion.
- LEAs commonly encounter situations where foreigners launder funds in the United States or other jurisdictions using U.S. corporations.
- Limitations on BO availability and authorities’ inability to initiate investigations on behalf of foreign counterparts in some circumstances may hamper international cooperation.
- For tax crimes (but not laundering of proceeds from tax crimes), the IRS can exchange BO information on U.S. corporations that have an EIN with foreign tax authorities based on bilateral tax agreements.
- For enquiries relating to U.S.-based corporations without an EIN and for non-tax related foreign requests for assistance in ML investigations, U.S. authorities are not able to respond in identifying and exchanging BO information unless they can initiate a criminal investigation in the United States that successfully discovers the BO of the subject corporation(s).
- This inability is a particular concern for foreign requests related to laundering the proceeds of foreign tax evasion in the United States, because tax evasion is not a predicate offense to ML in the United States; an investigation cannot be initiated in the United States to obtain the BO information to provide the requested assistance.46
- The Organization for Economic Co-operation and Development’s Global Forum on Transparency and Exchange of Information for Tax Purposes has found the United States to be not fully compliant with its principles in relation to availability of information on ownership.45
- The unsatisfactory availability of BO information on U.S.-based corporations is likely to frustrate international cooperation and impede reciprocity.

### Recommendations (paragraph 30 and policy actions)
- Authorities regularly use investigative techniques to obtain BO information about U.S. corporations and trusts; these techniques could be made more effective by strengthening requirements to collect and maintain BO information.
- Authorities are recommended to expeditiously take steps to ensure that accurate BO information of U.S. corporations and trusts can be accessed by the competent authorities in a timely manner, in particular by:
  - requiring that such information is collected and maintained by either registries of corporations and trusts, agents serving corporations and trusts, or corporations and trusts, and accessible by competent authorities in a timely manner; and
  - requiring all FIs and DNFBPs, in particular trust and company service providers (TCSPs) including lawyers and accountants providing such services, to identify the beneficial owners of corporations and trusts and take reasonable measures to verify those identities.
- In order to facilitate combating the laundering of tax crimes, including through international cooperation, the authorities are recommended to make serious tax crimes predicate offenses to ML.
- Note: Laundering in the United States of proceeds associated with taxes evaded abroad cannot trigger criminal investigations in the United States since tax crimes are not predicate offense to ML in the United States.46

### Procedural distinctions and information-exchange summary (as presented)
- Tax crimes — Criminal investigation initiated in the United States:
  - Through the IRS based on bilateral agreements (BO information available for exchange limited to that of those corporations with an EIN); and
  - Through other LEAs based on bilateral agreements or other mechanisms
- Tax crimes — No criminal investigation initiated in the United States:
  - Through the IRS based on bilateral agreements (BO information available for exchange limited to that of those corporations with an EIN).
- Non-tax related — Criminal investigation initiated in the United States:
  - Through other LEAs based on bilateral agreements or other mechanisms
- Non-tax related — No criminal investigation initiated in the United States:
  - Appears to be unable to assist

*Source: _cr15174 - 27.      Moreover, the adequacy, currency, and accuracy of the BO information that could be*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15174.pdf_