Treasury: Banks Should Speak Up on Beneficial Ownership Plan

WASHINGTON — David Cohen, the Treasury undersecretary for terrorism and financial intelligence, urged banks and others in the financial industry to weigh in on a regulatory plan to require institutions to identify beneficial ownership of their account holders.

Speaking Tuesday before a Financial Crimes Enforcement Network hearing on the plan, Cohen said regulators are committed to moving forward "in a manner that is both sensitive to regulatory burden and calculated to improve the quality of the U.S. anti-money laundering regime."

"If we are going to develop regulation that meets our objectives, assists you and your institutions in identifying and managing risk, and accomplishes all this in a manner as simple and clear as possible, then public engagement is a must," he said.

Fincen issued the advance notice of proposed rulemaking in February, arguing that beneficial ownership of accounts can pose heightened risks because it can allow individuals to shield the identity of the true owner of assets derived from criminal activity.

Although there have been several efforts to clarify the reporting of beneficial ownership, regulators said they are worried about the lack of uniformity in the way that bankers and broker-dealers collect the information.

"The United States does not have an explicit and clear [customer due diligence] rule," Cohen said. "We understand that financial institutions generally are expected to perform some of the components of CDD in order to meet their BSA obligations; however, the obligation to collect beneficial ownership information… is only explicitly required in very limited circumstances, or as a potential risk mitigant for higher-risk scenarios."

Cohen said regulators are wary of a "one-size-fits-all" approach, however, and said Treasury "will look closely at sectoral differences as we work to determine what makes the most sense."

During his remarks, Cohen indirectly mentioned violations by HSBC of anti-money laundering rules, which formed the basis of a report and hearing by the Senate's prominent Permanent Subcommittee on Investigations.

"Recent enforcement actions against financial institutions highlight the continued misuse of the financial system as well as the importance of compliance with legal obligations," he said.

While Treasury pursues a regulation to require beneficial ownership reporting, the administration is also simultaneously backing legislation that would require such information at the time the legal entity is formed. Two versions of such a bill are currently pending in Congress.

But Cohen focused his remarks largely on the Fincen proposal, saying it remained a critical effort.

"We remain convinced that we can — and, indeed, must — improve financial transparency so that, together, we do an even better job of combating illicit financial activity," he said.