Loopholes in New Treasury Rule Perpetuate Problem of Anonymous U.S. Shell Companies—Enabling Terror Finance, Crime, and Corruption

WASHINGTON, DC – Leading anti-corruption, anti-money laundering, and tax policy experts expressed deep concerns about a set of rules and proposals announced by the Obama Administration last night in the wake of the so-called “Panama Papers” revelations.

“While we appreciate the Administration’s recognition of the importance of collecting ownership information, the measure includes a loophole that could well perpetuate the problem of anonymous shell companies. The loophole is dangerous if exploited by terrorists, human traffickers, and corrupt foreign dictators to launder their money through the U.S. financial system,” noted Gary Kalman, the executive director of the FACT Coalition.

The measures include a final Treasury rule on the anti-money laundering obligations of banks, a proposed IRS rule on foreign-owned LLCs, and a proposed piece of legislation—about which no details have been published yet—purportedly seeking a broader solution.

“The loopholes in the final Treasury rule allow banks to open accounts for companies without having any idea of the identity of the people who ultimately own or control that company.  Without this critical information, banks can’t determine whether the people behind the company are on a sanctions list, a drug kingpin list, or are public officials who may be stealing from their countries treasury or trying to stash their bribe money in U.S. banks,” noted Heather Lowe, legal counsel and director of government affairs at Global Financial Integrity.

Mark Hays, a senior policy advisor at Global Witness, adds: “The rule will allow criminals to list managers of shell companies—for example, an employee of a law firm such as Mossack Fonseca, the Panamanian company exposed in the Panama Papers—as the ‘beneficial owner’ of a company.”

Elise Bean, the former staff director and chief counsel of the U.S. Senate Permanent Subcommittee on Investigations, explains that the rule could actually make things worse: “Many U.S. banks have done the hard work involved with developing systems that verify the true owners of shell companies seeking to open accounts.  The new rule makes all that hard work irrelevant, by allowing U.S. financial institutions to name a company manager as the company’s beneficial owner, even when that manager has no true ownership role.  The rule weakens U.S. anti-money laundering safeguards and makes it easier for terrorists, money launderers, tax evaders, and other wrongdoers to open U.S. accounts without revealing their identity.  It is a mistake that needs to be fixed.”

While no details have been published about the contents of the proposed legislation, FACT members are concerned that it might contain similar flaws to the final Treasury rule and potentially undercut current bipartisan efforts to address the problem.

Mr. Kalman of the FACT Coalition added: “Bipartisan legislation already in Congress includes a meaningful definition of beneficial ownership.  We encourage the Administration to support that bipartisan approach.”

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Notes to Editors:

• Read an HTML version of this press release.
• The FACT Coalition held a tele-conference call with reporters earlier this afternoon. Speakers included Elise Bean, Mark Hays, and Heather Lowe.  Click here to listen to the recording of the call (~51 minutes).

Journalist Contact:

Clark Gascoigne
Deputy Director, FACT Coalition
cgascoigne@thefactcoalition.org
+1 202.813.0290