U.S. anti-laundering efforts fall short in piercing corporate secrecy, global FATF says

The United States received failing scores for its efforts to prevent shell companies, accountants and real estate agents from laundering criminal proceeds, the international Financial Action Task Force said in a report released Thursday. Overall, the United States had “robust” anti-money laundering efforts, which were “highly effective” at countering terrorism financing, FATF, an international organization that sets global standards for fighting illicit finance, said in its evaluation report of the U.S. But the organization said the United States did not do enough to reign in corporate secrecy, presenting “serious gaps” in law enforcement efforts that leave the financial system “vulnerable” to dirty money.

In its first evaluation of the United States in ten years, FATF scored Washington non-compliant — the lowest possible score — for its inability to determine the true owners of shell companies, sometimes used by money launderers to hide illegal proceeds. FATF also gave Washington a failing score for how little it monitored non-financial industries sometimes used in money laundering, such as law firms and realtors. For example, unlike banks, real estate agents in the United States are not required to notify authorities if they suspect a customer is trying to move dirty money through property. FATF criticized many of these shortcomings in its last evaluation of the United States in 2006, raising concerns about why Washington had still not acted. “The U.S. views itself as a standard setter among nations,” said Ross Delston, a Washington-based anti-money laundering attorney. “But in key areas it fails to measure up to international standards which opens the doors to Panama papers-type transactions and schemes to hide money.”

In a call with reporters, a senior U.S. Treasury Department official highlighted the strong ratings FATF gave the United States for its efforts fighting terrorism finance. But the official acknowledged the shortcoming raised by FATF. The organization’s criticism that the United States does not require companies to disclose their true, or beneficial owners, was correct, the Treasury official said. The Obama administration proposed legislation to mandate companies to disclose beneficial owners in May, but Congress has not introduced the bill, the official said. Without such a bill, the official said, “the U.S. will continue to lag behind our global partners.” The Treasury Department released a rule in May that will obligate banks to collect beneficial ownership information from companies, starting in 2018. But the rule does not impose any transparency requirements on the companies themselves.

International banks, investors and regulators use the FATF scores to help determine the risk level of countries, although experts say it’s unlikely that the ratings will turn away investors from the United States. From an anti-money laundering perspective, U.S. regulation of the banking and securities sectors “appears to be robust as a whole and is evolving for money services businesses” such as money transfer firms, the FATF report states. The report “validates what we’ve said for a long time,” said Rob Rowe, a lawyer with the American Bankers Association. “The industry has made a lot of effort to meet the expectations and this seems to validate that we’re doing a good job,” Rowe said. The U.S. government, regulators and financial institutions “have much to be proud” about, said Duncan DeVille, global head of financial crimes compliance with money transfer giant Western Union. “Our partnership with FATF helps both us and governments craft appropriate policies and regulations and informs all financial institutions of risks and mitigating controls that should be implemented. The mutual evaluation of the U.S. will be closely studied by the company and other financial institutions,” said DeVille, former head of the office of compliance and enforcement with the U.S. Treasury Department’s Financial Crimes Enforcement Network. (Additional reporting by Yeganeh Torbati; Editing by Bernadette Baum)

By: Joel Schectman, Reuters and Brett Wolf, Regulatory Intelligence, Thomson Reuters

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