U.S. lawmakers seek to force firms to report ownership, with access for enforcement and banks

Bipartisan bills were introduced on Wednesday in the U.S. Senate and House of Representatives aimed at preventing criminals from hiding behind anonymously-owned shell companies created in the United States. If enacted, the legislation would narrow a gaping hole in the U.S. anti-money laundering net.

The legislation, which is closely tied to a rule the U.S. Treasury finalized last year requiring banks to collect information about the “beneficial,” or true owners of legal entity accounts, would provide banks access to government-maintained ownership information, with customer consent.
Congress has previously failed to pass similar legislation, but this attempt may be bolstered by fresh criticisms of U.S. standards by an international anti-laundering body, and by last year’s “Panama papers” revelations highlighting secretive ownership networks.

Republican Representatives Peter King of New York and Ed Royce of California, along with Democrats Carolyn Maloney of New York and Maxine Waters of California, on Wednesday introduced the Corporate Transparency Act in the U.S. House of Representatives.

In the Senate, Republican Charles Grassley of Iowa and Democrats Dianne Feinstein of California and Sheldon Whitehouse of Rhode Island introduced a companion bill, the True Incorporation Transparency for Law Enforcement (TITLE) Act.

The full text of the bills was not available as of the time this article was published.
Anonymously-owned companies – those created in states where true ownership information is not collected or maintained – have long been a thorn in the side of U.S. law enforcement agents.
Many investigations by U.S. authorities and their foreign counterparts hit dead ends due to anonymous U.S. companies, law enforcement sources have told Thomson Reuters Regulatory Intelligence many times during the past decade. A number of bills have been introduced over the years in an effort to plug this glaring gap, yet none have been enacted.

A 2016 report by the global anti-money laundering (AML) standard-setting Financial Action Task Force, or FATF, said a lack of “timely access to adequate, accurate and current beneficial ownership information remains one of the fundamental gaps” in the U.S. AML net. FATF had similarly criticized the United States in a 2006 report.

It remains unclear whether Congress will succeed where it has failed in the past, but the massive leak of financial data from a Panamanian firm in April 2016, the so-called Panama Papers, shed considerable light on the abuse of shell companies and generated significant public outrage and potentially, political will.

However, states that generate substantial portions of their revenue by registering companies with scant disclosure of the real owners, particularly Delaware, have effectively stymied legislative efforts in this space to date. Revenue from Delaware’s corporations unit surpassed the $1 billion mark for the first time in 2015, Reuters has reported.

“From multi-million dollar healthcare fraud to terrorist financing, anonymously-owned companies act as getaway cars for all sorts of criminals,” said Stefanie Ostfeld, deputy head of Global Witness’ U.S. office. “Swift passage of this legislation will make it harder to move, enjoy and hide dirty money and demonstrate that Congress is serious about making sure the U.S. is not exploited by criminals and the corrupt who are a risk to national security.”

A key criticism of Treasury’s final rule on Customer Due Diligence and beneficial ownership – set to go into force in May 2018 – was that it required banks to ask customers questions about ownership, but without the ability to verify the accuracy of the information.

But some U.S. authorities have long maintained that the Treasury rule was not meant to function alone, but in concert with legislation that would peel back secrecy. If enacted, the legislation announced Wednesday would give banks an option for information verification, but might be viewed as a burdensome obligation by the banking industry.

A spokesman for the American Bankers Association on Wednesday afternoon said the trade group was not yet prepared to comment on the legislation.

Among other things, the Corporate Transparency Act would:
• Direct the Treasury Department to issue regulations requiring corporations and limited liability companies formed in states that do not already require basic disclosure, to file information about their beneficial owners.
• If a state chooses not to collect beneficial ownership information, then Treasury would collect beneficial ownership information as a backup.
• Establish minimum beneficial ownership disclosure requirements: must provide beneficial owners’ name, current address, and non- expired passport or state-issued driver’s license.
• Provide civil penalties for persons who submit false or fraudulent beneficial ownership information, or who fail to provide complete or updated beneficial ownership information.
• The information collected by Treasury or the states would be available only to law enforcement authorities or financial institutions, with customer consent, for customer due diligence purposes.

Many companies, such as those with over 20 employees and over $5 million in gross receipts or sales, which have a physical presence in the United States, would be exempt from the bill’s requirements as they do not fit the profile of anonymous shells, the bill’s authors said.

Published 29-Jun-2017 by
Brett Wolf, Regulatory Intelligence

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