17th February 2021
HERRICK K. LIDSTONE, JR. BURNS, FIGA & WILL, P.C.
Many attorneys form entities for their clients and act as registered agent for their clients. These actions create the risks of “ethical landmines” that attorneys should consider in connection with their continuing role as organizer or registered agent. While the rules have not yet been issued, based on the statute and the likely rules to be adopted to effectuate the Corporate Transparency Act, it is possible that the initial beneficial ownership reporting obligation will fall on the organizer and the continuing beneficial ownership reporting obligation will be the responsibility of the registered agent. Herrick Lidstone of MSI's Colorado law member Burns, Figa & Will explores this further.
Colorado, specifically, and the United States, generally, allow free formation of entities for business and non-business purposes, with little to no obligation to disclose the underlying beneficial owners. This purportedly allows these anonymously-owned entities to be used for money-laundering and terrorist financing operations.
The William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (the “NDAA”) inclusion of the federal Corporate Transparency Act is the most recent step to require disclosure of the owners of private businesses. This new federal requirement follows international attention focused from the international Financial Action Task Force (“FATF”), almost twenty years of effort in Congress, and the geographical targeting orders (“GTOs”) issued by the Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”).
IT HAS BEEN BREWING FOR A LONG TIME
The FATF. The international Financial Action Task Force (“FATF”) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing, and the financing of proliferation of weapons of mass destruction. The FATF makes recommendations on a country-by-country basis to address risks of global anti-money laundering (AML) and counter-terrorist financing (CTF). In a 2006 report, the FATF found the United States to be non-compliant in a number of international specifications with respect to various issues, including a lack of “customer due diligence” by banks and casinos, and a lack of information about beneficial owners of entities.
As recently as December 1, 2016, the FATF said “the United States has a robust regime to combat money laundering and terrorist financing, however, serious gaps impede timely access to beneficial ownership information.”
Colorado. I have written about beneficial ownership disclosure and transparency issues in the Business Law Section newsletter since December 2007 when I discussed a “breaking news story” issued on November 13, 2007, Denver’s Channel 7 News which was entitled “Colorado Open For Business To Illegal Immigrants Or Terrorists” and subtitled “Loophole In Law Allows Corporations To Set Up Unchecked.” The point of the story was that any person could form a corporation or limited liability company in Colorado and remain anonymous because there is no central repository accessible to the authorities to provide information about the legal or beneficial owners of the entity.
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