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Risk Fraud & Compliance

Forum: International impacts of the beneficial ownership rules

Rabihah Butler  Manager for Enterprise content for Risk, Fraud & Government / Thomson Reuters Institute

· 7 minute read

Rabihah Butler  Manager for Enterprise content for Risk, Fraud & Government / Thomson Reuters Institute

· 7 minute read

An interview with Holland & Knight’s Ed Arista

As we move further into this year, financial crime professionals have experienced a shift in direction, hoping to close some loopholes in the area of money laundering. For companies doing business in the United States, the change centers around the Beneficial Ownership Information (BOI) Reporting Database and the obligations it created, which are outlined in the Corporate Transparency Act (CTA) that was enacted by Congress as part of the Anti-Money Laundering Act of 2020.

One concern over these new regulations voiced by compliance professionals is the lack of education on the requirements. This concern stems from a lack of widespread education and information on the new rule. For those enterprises with dealings in the US or those owned by US citizens, a beneficial ownership filing seems rather simple and like an obvious next step. However, this becomes more complicated in cases in which the company is formed in another country, or the owners are based there.

Most individual owners in that situation may not be accustomed to providing personal identifying information, and indeed, may be shocked when they realize how many individuals are considered beneficial owners under the new rule, despite at times being only tangentially related to the enterprise. The persons responsible for filing the report are often concerned about how they are going to get the correct information.

Ed Arista, a partner at the global law firm of Holland & Knight, points out one of the major issues in this situation is the complexity. “Cross-border legal structures designed to achieve tax efficiency and legal protection tend to be quite complex, so foreign investors need to move quickly and confidentially to determine how to comply with this new obligation to avoid hefty fines and criminal exposure, while preserving as much privacy as the law permits,” he said.

Arista noted that in his practice he has been proactively letting those clients with complex situations know what they would need to do in order to comply. Not every attorney is that proactive, and it is unclear how foreign beneficial owners will learn of this new requirement if they don’t have a relationship with a US-based law or tax firm.

“International private clients who are beneficial owners of companies in the US need to rush their legal planning to completion to preserve privacy without incurring hefty penalties and criminal exposure,” Arista noted. “This advice is both prudent and necessary.”

Five necessary steps

In such a complex situation, there are five basic steps that need to be taken by those enterprises concerned with compliance with the new rule:

    1. Consult with an experienced attorney that has expertise with the type of enterprise in question.

    1. Establish attorney/client privilege with that lawyer, making sure your business information remains confidential.

    1. Have the lawyer analyze the corporate structure and make a beneficial ownership determination.

    1. Collect the appropriate information from all individuals who must be reported as beneficial owners.

    1. File the report on time to avoid penalties.

While this might seem simple, each step requires time and care to ensure accuracy. Indeed, some of the steps have some delicate intricacies to them. For example, it’s crucial to make a clear delineation of who the client actually is – the individual or the company – and that determination should be made early.

Further, most law firms usually are not in the business of ongoing compliance, and filing into the BOI Reporting Database is not a one-time thing. The filing creates an ongoing obligation to update the information as any changes occur. Some lawyers will file, of course, but there must be a very close relationship with the client to ensure ongoing compliance.


“I don’t think the complexity of these entities will go away, as their complexity reflects the complex estate planning and tax laws.”

— Ed Arista


International filings for complex enterprises

In looking at the trajectory of international enterprises, Arista had a very intriguing thought. “I don’t think the complexity of these entities will go away, as their complexity reflects the complex estate planning and tax laws,” he explains. “I do think that the companies, banks, and family offices, and maybe even accounting firms will have systems in place to gather information more automatically at the beginning of the relationship and have a system to continually follow up if anything changes. Everyone involved in the filing of a beneficial owner report must have done their due diligence.” In short, the new normal for these complex enterprises will require a bit more meticulous behavior.

In the event that an attorney is not filing for a complex enterprise, they might be looking to their tax professionals to help, especially those that often deal with the IRS and the US Department of Treasury.

“Accountants are filing Foreign Bank Account Reports with [the Treasury Department’s] Financial Crimes Enforcement Network, which contain financial information. However, beneficial owner reports do not contain any financial information,” Arista says. “What they do contain is the personal data of the individuals who meet the legal definition of being beneficial owners, which makes it more complicated.” Also, an extension to the compliance filing can put tax professionals in the deep end of murky waters.

The American Institute of CPAs has taken the position (at least for their malpractice insurance benefits) that filing these reports may be considered an unauthorized practice of law. This is not a determination that was confirmed by any state bars, but it does give pause to boutique tax & accounting firms about what actions are appropriate. Some accountants in smaller firms may do it, but midsize or large firms are not likely to take such a risk.

Arista, like most attorneys, says he expects that over the next 6 to 12 months, there will be a lot of scrambling to update some corporate structures, especially around who has to be involved in the legal structure. Some entities could be split up because they don’t want to share information within the whole group. For example, a family business may split into separate entities in order to provide more privacy.

After the issuance of a summary judgment in an Alabama federal district court in National Small Business United v. Yellen, businesses are questioning their obligation to comply. And there are also concerns over the constitutionality of the BOI Reporting Database. This ruling has already been appealed, and attorneys like Arista believe reporting companies should continue gathering information for timely filing and comply with CTA’s reporting requirements.

Over the next year, the legal battle over the constitutionality of the database will move though the appropriate judicial and regulatory channels. After the legal battle is completed, businesses will be left with this additional requirement as the time continues to tick away for entities to comply with this new standard. With more than 32 million current enterprises – along with 5 million new ones estimated to be created each year – being proactive is going to be key. While 2024 will be an important year in this regard, it will also serve as the guide for years to come.

You can find more of Ed Artista’s writings, thoughts, and opinions here.