U.S. issues rule requiring banks to identify shell company owners

Thu May 5, 2016 9:03pm EDT
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By Yeganeh Torbati and Elizabeth Dilts

WASHINGTON/NEW YORK (Reuters) - The Obama administration is issuing a long-delayed rule requiring the financial industry to identify the real owners of companies and proposing a bill that would require companies to report the identities of their owners to the federal government, U.S. officials said on Thursday.

The Customer Due Diligence (CDD) rule, in the works since 2012, and the proposed legislation are meant to hinder criminals from using shell companies to hide ownership and launder money, finance terror, and commit other threats to the global financial system.

The use of shell companies to hide assets and avoid taxes is in the spotlight following a massive leak of data from the Panama-based law firm Mossack Fonseca, which embarrassed several world leaders and sparked government investigations around the globe into possible financial wrongdoing by the wealthy elite. The International Consortium of Investigative Journalists said it will release a searchable database of more than 200,000 offshore entities next week.

"Fundamentally our financial system should not provide the rich, the powerful, and the corrupt with the opportunity to shield their assets," said Wally Adeyemo, the U.S. deputy national security advisor for international economics, in a call with reporters on Thursday. "Nobody should be able to hide in the shadows from their legal obligations."

The final CDD rule will require banks, brokers, mutual funds and other financial institutions to collect and verify the identities of the real people, or "beneficial owners," who own and control companies when those companies open accounts.

Financial institutions will have to verify the identity of any person or company who owns more than 25 percent of the company, and one live person who controls the company even if that person owns less than 25 percent.

Banks will have two years to get their systems into compliance, said Jennifer Fowler, the U.S. Treasury deputy assistant secretary for terrorist financing.

The U.S. Treasury said in 2012 it planned to propose a rule that would clarify and standardize financial institutions' obligations to know the identities of their customers.   Continued...

A company list showing the Mossack Fonseca law firm is pictured on a sign at the Arango Orillac Building in Panama City in this April 3, 2016 file photo. REUTERS/Carlos Jasso/Files