Around 165,000 companies and legal entities in Puerto Rico will be required to disclose the identities of all individuals who directly or indirectly own or control them to the U.S. Department of the Treasury starting this year. The information will remain confidential and be accessible only to law enforcement agencies and select banking institutions to enforce federal anti-money laundering regulations.
The new rule took effect at the start of the new year, as a result of the Corporate Transparency Act of 2021. According to the statute, the goal is to combat financial crimes committed through entities registered in U.S. jurisdictions, including Puerto Rico, which have little or no available information about their owners or beneficiaries.
“Effective January 1 of this year, essentially all corporations and other legal entities [in Puerto Rico] must submit certain information verifying the identity of their beneficial owners,” confirmed Secretary of State Omar Marrero in an interview with the Centro de Periodismo Investigativo (CPI).
Photo by Ricardo Arduengo | Centro de Periodismo Investigativo
There are 168,577 active legal entities in Puerto Rico, according to data from the Department of State provided to the CPI. The figure is mainly divided between corporations (75,118) and limited liability companies, or LLCs (79,781). The latter is one of the most attractive forms for organizing certain types of businesses due to its flexibility and minimal disclosure requirements.
Existing entities have one year, until January 2025, to report to the federal government the name, date of birth, address, and license or passport of those who control or own the company. Companies created after January 1, 2024, will have 90 days from their registration to submit their report.
Failure to comply with the new rule carries penalties ranging from a $500 fine for each day of non-compliance to two years in prison or a fine of up to $10,000. The responsibility for submitting the report and complying with the new federal law also falls on the company's senior officers.
The reports, which do not involve paying taxes or fees and do not require the intervention of a lawyer or accountant, can be submitted online. Last September, the Financial Crimes Enforcement Network, or FinCEN, the Treasury division responsible for implementing the new law, published a compliance guide for small businesses.
The list of 23 types of companies exempt from submitting these reports includes banks, cooperatives, securities brokers, insurance companies and producers, large operating companies, investment firms, accounting firms, and tax-exempt entities, among others. According to the compliance guide, large companies are considered those with more than 20 full-time employees, a principal office in the U.S., and that report $5 million or more in gross revenue to the Internal Revenue Service (IRS).
According to the Secretary of State, many of the exempt entities are highly regulated and are already required to disclose beneficial owner information to various regulatory agencies. Inactive companies will also not have to submit the new reports to FinCEN.
"Outside of those very limited exceptions, all corporations, all LLCs, all foreign legal entities in the United States, both mainland and in its territories, must submit that information directly to FinCEN," Marrero added.
He assured that the responsibility for implementing this new rule lies with the Treasury, not the Puerto Rican government.
He explained that the role of the Department of State is limited to informing and educating companies registered in Puerto Rico about the new federal requirement through the press, professional organizations such as the College of Certified Public Accountants, and direct online notifications.
The agency sent a notification in December to the email of all registered entities at that time, according to Marrero.
Information Collected Will be 'Confidential'
While other places in the world, such as the European Union, provide greater public access to some of the data on "beneficial owners," such as names, the federal law declares the information obtained through the new report as confidential.
Even so, the enactment of the law is a significant event, said Erica Hanachak of the Financial Accountability and Corporate Transparency Coalition (FACT Coalition), based in Washington, D.C., which brings together a hundred organizations to combat financial corruption.
"It is the most significant update to anti-money laundering laws in the United States in the last 20 years," Hanachak said. "Obtaining a library card required more information than forming an entity, company, or corporation [in the United States]," she added.
Hanachak explained that although the information obtained will not be public, law enforcement agencies, such as the IRS, will be able to use it to detect and investigate financial crimes. It is estimated that more than 32 million entities will have to comply with the rule during the first year of its implementation.
Globally, the U.S. is one of the jurisdictions with the least corporate transparency, according to Hanachak. In 2021, Treasury Secretary Janet Yellen admitted that the United States is probably one of the best places in the world to hide and launder money.
This includes Puerto Rico.
In February 2019, the European Commission added Puerto Rico to its list of high-risk jurisdictions for its "strategic deficiencies" in its anti-money laundering and terrorist financing practices. At that time, the U.S. Treasury rejected Puerto Rico's inclusion and raised concerns about the evaluation process followed by the European Commission.
Recent investigations by the CPI show systemic failures and a lack of financial resources in the oversight of entities in Puerto Rico and their owners, some of whom have been investigated and charged with financial crimes by federal authorities.
Additionally, in 2021, as part of the multinational investigation by the International Consortium of Investigative Journalists' Pandora Papers, the CPI revealed how some international banks established in Puerto Rico are used to open accounts and transfer money from opaque companies and offshore businesses, whose owners often remain behind the scenes to hide assets from tax payments or, in the worst cases, money laundering and other illegal transactions.
"Due to the secrecy benefits they provide, [these opaque entities] have become an essential part of complex networks aimed at hiding assets, evading taxes, and making it much more difficult to understand who is really behind an operation," Hanachak said.
Although in Puerto Rico the physical address, phone number, and names of authorized persons, resident agents, officers, and incorporators of a company are already disclosed, the Department of State does not require data on beneficial owners, similar to most U.S. states and territories. Under the new rule, the company would have to submit a new report to FinCEN each time there is a change in the entity's control.
A beneficial owner is anyone who "has direct or indirect ownership or control of a company," according to FinCEN. Marrero assured the CPI that there would be no changes in the information required and already disclosed on the Department of State's website, although this could coincide with the information provided in the beneficial owners' report to FinCEN.
