WASHINGTON – Despite a robust anti-money-laundering regime imposed on banks and money services businesses in the U.S., a number of loopholes are allowing other companies to skate by without performing basic due diligence to curb the flow of illicit funds.
That was the verdict of a report published Thursday by the Financial Action Task Force, a Paris-based international body dedicated to combating money laundering and terrorist financing. The task force evaluates countries every decade.
The "framework in the U.S. is well developed and robust," the report said. "However," it "has some significant gaps, including minimal coverage of certain institutions and businesses" such as investment advisers, lawyers and real estate agents.
Though relatively positive, the results underscore the unevenness of U.S. efforts to curb the flow of illicit funds. FATF gave below-average ratings to the U.S. on three out of 11 "effectiveness ratings" – which measure how authorities implement the country's AML regime – and 10 out of 40 "technical compliance ratings" – which broadly measure the strength of the laws and regulations in place.
"In the 10 years since the last FATF mutual evaluation, the biggest surprise is how little has changed," said Ross Delston, an attorney and AML expert based in Washington. "Many of the criticisms that FATF makes in this report were made with equal force ten years ago in areas such as beneficial ownership of companies and trusts, the failure to include key elements of the financial sector such as investment advisors as well as other businesses and professions like the legal profession and real estate agents."
The report gave the U.S. good marks on a number of issues, including its efforts to curb terrorist financing and stop the proliferation of weapons of mass destruction, and its use of civil and criminal asset forfeiture to stop bad actors.
"The report acknowledges our strong AML/ CFT regime and recognizes the success of the government architecture we have built since Sept. 11, 2001, to cut off the flow of funds and resources to terrorists and their supporters," said Jennifer Fowler, Treasury deputy assistant secretary for terrorist financing. "The report notes the strong collaboration and information sharing between the intelligence community and law enforcement."
But, Fowler acknowledged, "While the report recognizes areas where the United States excels, it also identifies areas where we have more work to do."
Throughout the report, FATF pointed to a number of loopholes in the U.S. AML regime that allow nonfinancial businesses, including lawyers and companies that organize and create firms and trusts for third parties, to escape rigorous oversight.
"There is increased focus from the authorities on [those nonfinancial businesses] due to identified vulnerabilities," the report said. "However, apart from casinos (and to some extent, dealers in precious metals and stones), no other [risky nonfinancial businesses are] comprehensively covered under the AML/CFT framework," said the report.
FATF recommended imposing suspicious activity reporting requirements on lawyers, accountants and trust and company service providers "as a matter of priority."
The administration acknowledged that some sectors were treated unevenly in terms of AML requirements, but said this was also due to differences in risk profiles.
"We look at our systems and try to identify the highest risks," a senior Treasury official said on a conference call with reporters. "It's clear to us the highest risks are in the banking sector."
Overall, the report praised the U.S. banking sector for handling risks well, particularly by monitoring transactions and performing customer due diligence for new accounts. Along with money services businesses, they are responsible for filing 96% of all SAR filings, the report found.
"Banks seem generally to have integrated risk mitigation measures into their day-to-day operations, and larger banks appear to have developed a leadership role on many sophisticated controls in the sector," the report said.
But FATF took aim at the lack of beneficial ownership requirements imposed on new businesses, which vary state by state.
"The low rating we received for our lack of effectiveness in protecting companies from other legal entities from misuse was not a surprise," said the Treasury official. "FATF based its rating on a lack of requirement in the U.S. to disclose the identity of the person who owns or controls a company, also known as the beneficial owner, to the government when the company is formed."
After pending for many years, Fincen's rule requiring financial institutions to obtain the beneficial ownership information of new account holders was finalized this May.
Among other additional AML measures, the Treasury urged Congress to pass a bill that would require companies to register beneficial information with the federal government at the time of formation.
Lawmakers have not introduced such a bill yet, the Treasury official said.
"Without it, the U.S. will continue to lag behind our global partners in preventing the misuse of shell companies and other legal entities," the official said.