Article on U.S. Rule to Require Banks to Identify Shell Company Owners (4/6/16)

Louise Story, U.S. Plans to Require Banks to Identify Owners of Shell Companies (NYT 4/6/16), here.  Excerpts:

The United States government is close to issuing a rule that will for the first time require banks and other financial institutions to find out the identities of people hidden behind shell companies. 

The rule is meant to close a major loophole in the American banking system that enables the sorts of secretive financial maneuvers that were thrust into the spotlight this week with the leak of millions of documents from a law firm in Panama. 

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Under federal regulations, banks with American branches in the United States are required to “know their customers” who open accounts in the United States. But those rules have been significantly weakened because banks have not been required to know the identities of customers who set up accounts in names of shell companies. 

The government’s proposed customer due diligence rule, or C.D.D., is an attempt to close that loophole, a senior Treasury official said in an interview. 

“I don’t think everyone recognizes the connection between the C.D.D. and the Panama Papers,” said the official, Jennifer Shasky Calvery, director of the department’s Financial Crimes Enforcement Network. 

The new rule, she said, “would clarify and make absolutely clear to our financial institutions that they must know and understand the beneficial ownership of their customers,” she said. “We already know that they need to know their customer, but where that customer is a legal entity, we are clarifying that they need to know and understand the beneficial owner of that customer. Who is actually calling the shots? Who stands to gain?” 

The United States has been considered a laggard in the global push to shine light on the murky world of shell companies. 

For one thing, the United States allows its states to register limited liability companies and other structures without requiring the names of the actual people behind those companies. In addition, the know-your-customer loophole has let banks decide whether they will expend the resources to pierce the secrecy of shell companies that set up accounts. 

The new Treasury rule will require banks to find out the identities of any individuals who own 25 percent or more of corporate entities that open bank accounts, as well as any individuals exercising control over those entities.