The Treasury Department lobbed a three-pronged attack against money laundering and tax evasion Friday by releasing a Customer Due Diligence final rule, sending Beneficial Ownership Information legislation to Congress, as well as issuing proposed regulations related to foreign-owned, single-member limited liability companies.
The measures are being hailed as Treasury's reaction to the Panama Papers, which exposed that politicians, criminals and even celebrities are avoiding paying taxes by hiding their wealth in offshore shell companies.
Treasury Secretary Jacob Lew said that the measures "mark a significant step forward to increase transparency and to prevent abusive conduct within the financial system."
Together, the efforts "target key points of access to the international financial system – when companies open accounts at financial institutions, when companies are formed or when company ownership is transferred, and when foreign-owned U.S. companies seek to evade their taxes," according to Treasury.
The final CDD rule adds a new requirement that financial institutions – including banks, brokers or dealers in securities, mutual funds, futures commission merchants and introducing brokers in commodities – collect and verify the personal information of the real people (also known as beneficial owners) who own, control and profit from companies when those companies open accounts.
The rule also amends existing Bank Secrecy Act regulations to clarify and strengthen obligations of these entities.
The CDD rule also harmonizes BSA regulations and makes explicit several components of customer due diligence that have long been expected under existing regulations, as well as incorporating a new requirement for covered financial institutions to collect beneficial ownership information.
Treasury says that the rule contains three core requirements: identifying and verifying the identity of the beneficial owners of companies opening accounts; understanding the nature and purpose of customer relationships to develop customer risk profiles; and conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.
As part of the Beneficial Ownership Information legislation Treasury sent to Congress, companies formed within the United States would be required to file beneficial ownership information with Treasury, and face penalties for failure to comply.
