A new U.S. rule requiring the financial industry to identify owners of
companies opening accounts includes a loophole that could spur, instead of
curb, shell company abuse, transparency and anti-corruption advocates said on
Friday.
The
Customer Due Diligence (CDD) rule, unveiled by the Obama administration on
Thursday, is meant to prevent criminals from using shell companies to hide
ownership, launder money and commit other financial crimes.
But the
rule leaves room for financial institutions to satisfy a requirement that they
identify a shell company's "beneficial" or true owner by listing a
senior manager as such a person, said Elise Bean, former staff director and
chief counsel of the U.S. Senate Permanent Subcommittee on Investigations, in a
call with reporters.
A Treasury
Department spokeswoman said in an email that, to meet the beneficial owner
requirement, a person would have to be a high-level company official with major
responsibilities who is familiar with day-to-day operations. Titles the officer
could have include chief executive, chief financial officer, chief operating
officer, managing member, general partner, treasurer, president or vice
president, she added.
However,
due diligence by financial institutions that stops at a management figure would
allow individuals who set up shell companies for illicit purposes to continue
to hide their identities, Bean said during the call organized by the
Washington-based Financial Accountability & Corporate Transparency
Coalition.
The use of
shell companies to hide assets and avoid taxes is in the spotlight following a
massive leak of data from the Panama-based law firm Mossack Fonseca, which
embarrassed several world leaders and sparked government investigations around
the globe into possible financial wrongdoing by the wealthy elite.
The Obama
administration also proposed a bill on Thursday that would require companies to
report the identities of their owners to the federal government as another move
to combat shell companies.
Treasury's
CDD rule defines "beneficial owner," also known as the real company
owner, as someone who owns 25 percent or more of the company. That person can
also control or manage the entity. Those individuals can include a person with
"significant responsibility" to manage, and can be anyone from a
chief executive officer to a vice president, according to the rule.
Those
individuals could be figureheads in far flung locations such as the Isle of Man
or British Virgin Islands, rather than the real owners, critics of the rule
said.
"The
definition of a company's beneficial owner or owners must include a robust
definition that includes both the concept of 'ownership' as well as 'control'
to guard against bad actors using proxies to conduct business on their behalf,"
said anti-corruption group Global Witness in a statement.
(Reporting
by Suzanne Barlyn; Editing by Andrew Hay and Richard Chang)
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