White House Pushes for New Anti-Laundering Authority

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The Obama administration announced several major initiatives aimed at countering money laundering on U.S. soil, just days before the names of thousands of companies implicated in the Panama Papers investigation are expected to be made public.

Along with the publication of a long-awaited beneficial ownership rule, the Treasury Department and the Justice Department said that they would urge Congress to pass several bills designed to improve transparency and put the U.S. on par with foreign partners in the fight to curb the flow of illicit funds.

"Illicit financial activity is a critical concern for the United States and our partners around the world, and the Administration is committed to taking all available steps on this important issue," Treasury Secretary Jacob Lew said in a letter urging congressional leaders to adopt new and pending legislation.

The beneficial ownership rule will expand customer due diligence requirements for U.S. banks by forcing them to obtain the names of any individual who owns more than 25% of a company or controls it, as soon as an account is opened.

The Treasury will also send a bill to Congress that would require a new company to disclose the name of its owners when it is formed.

"Together these initiatives mark an essential step forward in preventing criminals from using companies to hide their identities and laundering criminal proceeds," said Jennifer Fowler, the Treasury's deputy assistant secretary for terrorist financing.

"They also target two different points of access to the international financial system: when accounts are opened in a U.S. financial institution; and when companies are formed or when company ownership is transferred in the United States."

The bill would bring together the information available to authorities on companies operating in the U.S. through a "central registry for beneficial ownership information," Fowler said. But it is unclear if the registry will be accessible to financial institutions themselves as they search for company information to implement the beneficial ownership rule.

The Treasury Department also announced a plan to extend the reporting requirements to certain foreign-owned companies that have been exempt: single-member limited liability companies. "This loophole can be used to shield the foreign owners of non-U.S. assets or non-U.S. bank accounts," said Robert Stack, deputy assistant secretary for international tax affairs at the Treasury Department.

On the foreign front, the Justice Department announced it would send legislation to Congress to increase its authority over transnational money-laundering cases by speeding up the subpoena process, adding foreign corruption laws to its arsenal, and extending the amount of time the U.S. can freeze assets at the request of a foreign government.

Treasury also urged Congress to pass legislation that would require domestic companies to send more information to foreign jurisdictions under the Foreign Account Tax Compliance Act of 2010.

Money laundering has come to the fore in recent weeks, since the publication last month of investigative news articles drawn from millions of documents tied to the law firm Mossack Fonseca. The articles brought to light the widespread and global nature of tax evasion. A searchable database is expected to be made public on Monday, including hundreds of thousands of offshore entities.

"Nobody should be able to hide in the shadows of their legal obligation and nobody should be able to play by a different set of rules," Wally Adeyemo, the deputy national security adviser for International Economics, said on a conference a call with reporters.

"What the Panama Papers do is they highlight the work that we've been doing here to aggressively go after this issue," Adeyemo said. "But it also makes clear that more needs to be done, and we're going to look for administrative means to do that. "

He added, "In addition to these administrative means, we need Congress to act."

The following is a summary of the steps outlined by the administration.

Treasury Department Initiatives:

  • Release of the final Beneficial Ownership rule, which will:
    • Require financial institutions to obtain and verify the identity of the so-called beneficial owners of a company. This includes individuals who control or own more than 25% of a company.
    • Amend Bank Secrecy Act regulations to expand law enforcement's access to company data.
  • Beneficial ownership legislation: As an additional measure to its rule for financial institutions, Treasury proposed a bill that would require U.S.-formed companies to know and disclose the identities of their owners at the time of creation or ownership transfer.
  • Proposal to close a reporting loophole for foreign-owned U.S. entities: Treasury's plan would require single-member limited liability companies and other foreign-owned U.S. entities to obtain a tax identification number and share their ownership and transaction data with the Internal Revenue Service.
  • Tax treaties: The agency is urging the Senate to pass eight tax treaties that have been awaiting final passage for years. Those include treaties with Luxemburg and Switzerland, which have been pending since 2010 and 2011, respectively.
  • FATCA reporting reciprocity: Treasury asked Congress to enact legislation that would require U.S. financial institutions to provide the same amount of information to other jurisdictions as foreign companies report to the IRS.

Justice Department Initiatives:

  • Legislation to expand the Justice Department's authority in transnational corruption cases, by:
  • Allowing U.S. prosecutors to pursue money launderers under foreign corruption law for acts committed in other countries.
  • Allowing authorities to issue administrative subpoenas in money-laundering cases, rather than grand jury subpoenas, which can be slower to process.
  • Streamlining the use of U.S. bank records located abroad by simplifying the requirements that make a document legally admissible.
  • Creating formal procedures for the use of classified information in civil lawsuits.
  • Increasing the restraint period in kleptocracy cases from 30 to 90 days, which would give foreign governments more time to demonstrate probable cause before the assets are whisked away.
  • Allowing U.S. prosecutors in kleptocracy cases to use foreign business records in civil asset-recovery cases, if they go through a certification test.
  • Legislation to amend statute 18 U.S.C. § 666, which spells out prosecutorial authority over theft or bribery connected to federal funds, by:
    • Including after-the-fact payments to public officials in the violations covered by the statute
    • Lowering the threshold of covered corruption cases from those involving $5,000 or more to those involving $1,000 or more. This would "address those cases where the dollar amount involved may be low but the threat to the integrity of a government function is high," a Justice Department press release said. The bill would also correct a drafting error.
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