Different countries have always handled the reporting of ownership in business entities that are subject to their jurisdiction in different ways. However, there is a growing trend towards requiring entities to report who has control over them in order to prevent illegal activities from occurring. This trend can most visibly be seen in the legal battels occurring in the European Union as well as the requirements in place in the United Kingdom and proposed regulations in the United States that will likely take effect in the coming years.
Until recently, legal entities incorporated in the European Union were required to disclose any beneficial owner to a publicly accessible registry as part of the European Union Anti-Money Laundering Directives. A beneficial owner is a natural person who directly or indirectly exercises control over the entity. On November 22, 2022, the Court of Justice of the European Union invalidated this publicity in WM & Sovim SA v. Luxembourg Business Registers. It was ruled to violate the privacy rights (articles 7 & 8) protected by the Charter of Fundamental Rights of the European Union. The Court acknowledged this law’s purpose as germane yet held that it was not “strictly necessary to prevent money laundering and terrorist financing.” This does not limit the government’s access, but does remove the public’s ability to view this information.
The United Kingdom claims to be the progenitor of beneficial ownership databases publicly available online. Termed the “People with Significant Control” (PSCs) register, it also tracks “Overseas Entity” ownership of British real estate. A British trust registry also exists, , but it is not publicly accessible. There is not a discernable legal challenge to be made against the PSC register (the UK lacks a written constitution), and it is unaffected by the EU’s decision regarding its own similar registry.
The United States lacks an equivalent to these registers. Although there are listings of legal entities, they are neither comprehensive nor centrally organized and without a focus on beneficial ownership. For example, the Securities Exchange Commission’s database has a beneficial ownership reporting requirement, but the holder may be another legal entity, which applies only to public corporations. Nevertheless, the U.S. will begin to move slightly closer to establishing a registry like those that exist across the Atlantic beginning in 2024.
The Financial Crimes Enforcement Network (FinCEN), a federal agency within the Treasury Department, promulgated final regulations on September 30, 2022, that will be effective on January 1, 2024, impacting 32,556,929 entities and beginning the motion towards centralized reporting. However, at this time there are 23 exceptions resulting in noncoverage for larger businesses and legal entities owned by other legal entities rather than natural persons. The resulting database will be confidential to combat abusive shell companies. The FinCEN estimated an annual compliance cost of $10.8 billion.
If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email info@lawburton.com for a consultation.
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California has required employers to “indemnify” employees for “necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer” in substantially the same terms since 1937 under Labor Code § 2802.
