Draft legislation aimed at improving the US’s federal anti-money laundering (AML) and counter terrorism financing (CFT) supervision would be a step towards solving issues around anonymity and transparency, according to Livia Benisty, head of financial crime at ComplyAdvantage, especially after a spate of scandals in 2018.
“Requiring transparency when it comes to the ownership of companies is key to enabling regulated financial firms, among others, to fulfill their due diligence in a meaningful and straightforward way,” said Benisty, in an email.
Failures to adequately monitor money laundering landed banks in the US with a series of fines in 2018. In February US Bancorp was ordered to pay a fine of $538m by the US Justice Department for violations of the Bank Secrecy Act and for inadequate AML protocols. In December last year, UBS was fined $15m by the Securities and Exchange Commission (SEC) for failing to monitor high-risk accounts.
According to Fenergo research the US accounts for 44% of all regulatory AML fines, and 91% of the total fine value.
Last week Senate Banking Committee members Mark Warner, Tom Cotton, Doug Jones, and Mike Rounds submitted draft legislation to improve corporate transparency and combat illicit financial activity. The Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (Illicit Cash) Act requires companies to disclose to FinCEN their ownership structures and aims to create a federal database for beneficial ownership information.
“We must be vigilant and ensure that our financial system is not being misused to fund individuals and groups who intend harm to the US and our allies,” said Warner in a statement. “This legislation will empower the Treasury Department and other appropriate agencies to better protect our financial system from such abuse and will ensure that we are using all the tools at our disposal to protect our national security.”
The authors of the Illicit Cash Act claim that the US’s anti-money laundering (AML) and counter terrorism financing (CFT) laws have not kept pace with the “growing exploitation of the global financial system to facilitate criminal activity.”
As well as creating the federal database, the legislation aims to set up a team of FinCEN technology experts to develop new technology, set up a liaison between the Treasury Department and financial institutions for AML-based clarifications, and require the Department of Justice to provide the Treasury Department with metrics on the usefulness of AML-CFT data from financial institutions for law enforcement purposes.
Compliance with transparency rules has been an issue for US firms in the past, said Benisty. “When the Final Customer Due Diligence (CDD) Rule came into play this was initially problematic for US firms who felt that the requirements on them to verify or validate ultimate beneficial ownership information was too burdensome and would face pushback from clients who were not used to being asked such questions – despite the fact that most of the major financial centers were already ahead on this requirement.”
The Final CDD Rule was enforced from 11 May 2018 by the US Financial Crimes Enforcement Network (FinCEN). Under it, the collecting, maintaining and reporting of beneficial ownership information is now a requirement for financial institutions.
A March study from Global Financial Integrity (GFI) found that in all 50 US states more personal information is required for someone to obtain a library card than to register a company. To get a library card in any state in the US, the applicant must be the person who will ultimately be using the card, and identifying information – addresses, numbers and email information – must be provided by the person to the state in order to obtain the library card.
According to the GFI study, to form a company in any state in the U.S., it is not necessary to identify or provide any information about the person or persons who will be ultimately be controlling the company. In some cases, it isn’t necessary to provide information about who will be managing the company.
“It is a commonly cited statistic that there are more ‘anonymous’ companies in Delaware than there are people,” said Benisty. “I believe that there is increasing understanding of the need to deal with corporate transparency especially in the wake of recent scandals, and perhaps more impetus to do so than ever before.
“Legislation to counter money laundering continues to evolve, as seen in Europe with the 4th, 5th and 6th Money Laundering Directives being approved within two or three years of one another. With the numbers standing where they do – up to 4trn laundered a year and only 1% detected and seized – it is difficult to imagine there won’t continue to be a push in this direction. This is heavily influenced by the scandals that continue to hit the headlines, as well as mounting suspicious regarding activities coming out of Russia, Venezuela and others.”