Piercing America’s Corporate Veil: A Historic Look at U.S. Anti-Money Laundering and Combating Terrorist Financing Legislation

The concept of the Corporate Veil is anchored in the principle of limited liability and has been a cornerstone of corporate law for centuries. Originating in English common law, this doctrine was designed to shield shareholders from personal liability for corporate debts, fostering entrepreneurship and economic growth. Yet, over time, this safeguard evolved into a tool for exploitation, exposing vulnerabilities in the global financial system.

From Innovation to Exploitation: The Evolution of Limited Liability

The Corporate Veil allowed businesses to innovate and expand without risking personal assets. However, its protective nature was increasingly exploited to enable illicit activities, including fraud, tax evasion, money laundering, and terrorist financing.

The devastating events of September 11, 2001, cast these risks into sharp relief. Corporate structures were revealed as mechanisms to obscure funding for terrorist activities and weapons proliferation. The U.S. faced an urgent imperative to address these systemic weaknesses, initiating a shift toward corporate transparency and accountability.

FATCA vs. CRS: A Tale of Two Transparency Frameworks

In its quest to combat financial crime, the U.S. introduced the Foreign Account Tax Compliance Act (“FATCA”) in 2010. This legislation required foreign financial institutions (“FFIs”) to report U.S. taxpayers’ account information directly to the IRS. FATCA provided the U.S. with unparalleled control over financial data, reinforcing its emphasis on financial privacy.

Meanwhile, the rest of the world embraced the Common Reporting Standard (“CRS”), a global initiative by the Organization for Economic Co-operation and Development (“OECD”). The CRS enabled countries to automatically exchange financial account information, fostering international collaboration in combating tax evasion.

By opting out of CRS, the U.S. prioritized its independent approach over global alignment. While FATCA addressed domestic tax evasion, its narrow scope failed to tackle broader risks, such as the misuse of anonymous shell companies. This limitation drew criticism for leaving significant transparency gaps in the U.S. financial system.

The Corporate Transparency Act: Closing the Loopholes

The passage of the Corporate Transparency Act (“CTA”) in 2021 marked a key moment in U.S. corporate governance. Designed to address vulnerabilities left unaddressed by FATCA, the CTA requires entities to disclose beneficial ownership information to the Financial Crimes Enforcement Network (“FinCEN”).

Key Provisions of the CTA:

• Beneficial Ownership Definition: Individuals with substantial control over a company or who own/hold 25%+ ownership interest.
• Substantial Control Includes: Senior officers or decision-makers influencing company operations.
• Ownership Interests: Direct/indirect equity holdings, convertible instruments, or arrangements granting control or benefit.
• Exempt Entities: Publicly traded companies, large operating companies meeting specific criteria (e.g., 20+ U.S.-based employees, $5M+ in gross receipts, substantial U.S. operations), regulated entities like banks and insurance companies, public utilities and tax-exempt nonprofits.

The CTA positions the U.S. as a global leader in corporate transparency, aligning with international standards and mitigating the risks of shell company misuse.

Lessons from the BVI: A Model for Compliance

At Cornerstone Private Asset Trust Company, LLC, a proud member of the BGM Group, we draw on decades of expertise honed in the British Virgin Islands (“BVI”), a jurisdiction celebrated for its balanced approach to Anti-Money Laundering and Counter-Terrorism Financing compliance. The BVI excels in harmonizing international regulatory standards with operational efficiency. Inspired by this model, Cornerstone has adopted robust governance practices that meet evolving U.S. regulations without compromising business agility.

The enactment of the Corporate Transparency Act marks a transformative step in the U.S. journey toward greater corporate transparency and integrity within its financial services system. More than just a legislative milestone, the CTA is a call to action. It is a pivotal AML/CTF shift that challenges the financial and corporate sectors to adopt higher standards of governance and accountability.

Beyond this, the CTA is more than a regulatory achievement; it is a pillar for trust in the financial sector, aligning the U.S. with a broader global movement to combat financial crime and enhance corporate accountability. Its implementation reflects a commitment to creating a system that is not only compliant but also transparent and equitable.

In an era of increasing complexity in compliance requirements, our focus remains steadfast: to build a transparent and resilient financial ecosystem that safeguards the integrity of the U.S. economy and promotes its long-term stability.   The BGM Group proudly embraces this mandate. We are committed to advancing compliance excellence, ensuring adherence to evolving regulations, promoting ethical business practices, fostering trust and responsibility, and maintaining strong regulatory alignment—positioning our firm at the forefront of best practices. We are actively contributing to this vision. By adopting proactive governance measures and adhering to global best practices, we are helping to define a future of accountability, transparency, and integrity.

This is a future where financial systems are not only protected but also positioned to drive sustainable growth and inspire confidence among stakeholders. It is a future that depends on the collective efforts of risk and compliance professionals, financial institutions, and regulatory bodies working together to uphold the principles that form the foundation of trust and stability.

The CTA is not just about regulation. It is about transformation, reinforcing the role of the financial system as a cornerstone of a fair and thriving economy for generations to come.

For inquiries or further insights, contact us at Cornerstone Private Asset Trust Company, LLC, a member of the BGM Group.