Treasury plans to finalize financial transparency rule soon

The Treasury Department is working to finalize a proposed rule “in the very near term” that would clarify and strengthen financial institutions’ responsibilities to know the identities of the people who control shell companies, an official with the department said.

The purpose of the rule is “to deny bad actors the ability to exploit the anonymity provided by the use of legal entities to engage in financial crimes,” Treasury Assistant Secretary for Legislative Affairs Anne Wall said in a letter to Senate Finance Committee ranking member Ron Wyden (D-Ore.) on Thursday.

She added that the rule is “one of our most important anti-money laundering and counter-terrorist financing priorities.”

Currently, the U.S. does not have a requirement that the people who control anonymous shell companies, or the “beneficial owners,” be disclosed at the time the company is formed. The proposed rule would require certain financial institutions to collect beneficial ownership information at the time of formation.

Treasury’s letter is a response to a call for action that Wyden issued in February, but the issue of anonymous shell companies has garnered a lot of attention this week because of the reports on the “Panama Papers.” Those papers come from a Panama-based law firm that sets up offshore shell companies for clients.

“The disclosures coming out of Panama shine a light on a core problem both here and overseas which is abuse by these anonymous shell companies,” Wyden said in a statement Friday. “The rules are so weak in the U.S. that Americans don’t need to go to Panama to rip off the system.” 

Treasury has the “necessary foundation” to collect and use information about the real owners of shell companies through the Financial Crimes Enforcement Network, Wall said.

Wall looked favorably upon a proposal in President Obama’s budget for allow the Internal Revenue Service to readily share information about beneficial owners, a Senate proposal that would require states to collect information about beneficial owners, and a House proposal that would allow Treasury to collect beneficial ownership information about entities formed in states that don’t take steps to collect it themselves. 

“Each of these proposals would provide a positive step toward collecting beneficial ownership information to increase the transparency of legal entites formed in the United States,” Wall said.

Wyden said he was pleased with the contents of Treasury’s letter.

“I look forward to reviewing new Treasury rules that require banks to identify the owners of shell companies opening new accounts and working together to put tough regulation in place that creates transparency to end the larger issue of fraud by these anonymous organizations,” he said.