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Matthew Ledvina Explores the Evolving Approach to Money Laundering by the United States Treasury


The US is a well-known secrecy jurisdiction for company ownership. Most US states laws are lax when identifying the economic owners to the Secretary of State.

The US has over 50 company jurisdictions and this allows jurisdiction ‘shopping’ for locating the lowest disclosure requirements. Delaware, Nevada, New Mexico, and Wyoming are best of the secrecy jurisdictions where these states know next to nothing about the owners. With so many disparities, only the federal government seems able to step in and change the paradigm.

The Financial Crimes Enforcement Network (FinCEN) of the United States Treasury has recently announced a new and more stringent approach designed to address threats that are emerging regarding money laundering and terrorist financing.

The Director of FinCEN, Kenneth A. Blanco, issued remarks on 12 June 2019 at the NYU Law Program on Corporate Compliance and Enforcement, underscoring the evolving approach of the agency in light of these threats. Unlike the UK, United States state laws currently allows ownership of shell or front companies to be hidden relatively easily.

FinCEN Focus

The focus of the remarks made by Blanca revolved around the identified need to address various money laundering threats, which include a noted increase in BEC schemes (business email compromise) and a response to the crisis in Venezuela. Blanca discussed the ongoing efforts of FinCEN to modernise and strengthen the AML and CFT systems (anti-money laundering and counter terrorism financing), as well as the work of the agency in collaboration with Congress to address the issue of gathering beneficial ownership information at the time of companies being formed.

Business Email Compromise

BEC schemes are a form of cyber-enabled financial fraud and the number of such schemes being operated is on the rise across the globe. A BEC scheme involves businesses in the US and in Europe being targeted by an organised crime group, usually with a single individual being targeted within the finance department.

Using a combination of telephone calls and spear phishing emails, the crime group groom the victim over a period, manipulating and exploiting human nature. Ultimately, the victim of the BEC scheme is convinced that money needs to be transferred for a legitimate business transaction and wires the money, at which point the crime group steer the funds to an account controlled by them.

This type of financial fraud has cost businesses around the world an estimated $12.5 billion since 2013. A Rapid Response Program has been created as a collaboration between the FBI and FinCEN to investigate tackling this issue.

The Venezuela Crisis

FinCEN is further looking into ways to combat the Venezuela crisis through increased collaboration with Mexico, Columbia, Argentina and Panama. A cross-country working group has been established with the financial intelligence units of each of the five nations, working to trace the path of illicit money that corrupt senior political leaders are facilitating out of Venezuela.

Beneficial Ownership Information

The Customer Due Diligence Rule, which was introduced by FinCEN in 2018, requires beneficial ownership information to be collected by financial institutions when an account is opened with the institution by a legal entity.

Blanco emphasized that this is just the first step in a process that must eventually lead to a requirement for this information to be disclosed at the formation stage of the entity. Significant resources must be expended by law enforcement agencies under current regulations to identify shell or front companies’ true owners.

GTOs (Geographic Targeting Orders) are still being issued by FinCEN, requiring insurance companies titled in the US to record and report incidences where high value real estate purchases are made by legal entities in specific geographical areas. This requirement was extended by FinCEN in May 2019.

About Matthew Ledvina

Matthew Ledvina

Matthew Ledvina is a cross-border tax adviser specializing in US taxation and has worked with a number of high profile, high net worth clients.

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