April 6, 2016
The release of the Panama Papers has revived the relevance of a proposed U.S. rule that would require banks and certain other “financial institutions” to identify natural persons who beneficially own or control companies, LLCs, general partnerships, and other legal entities formed in the United States or abroad (the “Proposed Beneficial Ownership Rule”). Issued in August 2014 by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), the Proposed Beneficial Ownership Rule continued a U.S. rule-making process that began in 2012.
Among its requirements, the Proposed Beneficial Ownership Rule requires specific “financial institutions” to implement Customer Due Diligence (CDD) procedures to identify and verify, according to risk-based approaches, natural persons who beneficially own, directly or indirectly, 25% or more of a legal entity or have “significant responsibility to control, manage, or direct” a legal entity. Given the global dominance of the U.S. dollar and financial system and the related reach of U.S. law, the adoption of the Proposed Beneficial Ownership Rule in final (binding) form would be significant.
On April 6, 2016, the New York Times reported that the U.S. Government is “close to issuing” a rule “meant to close a major loophole in the American banking system that enables the sorts of secretive financial maneuvers that were thrust into the spotlight” by the Panama Papers. Such a final rule would likely be identical or substantially similar to the Proposed Beneficial Ownership Rule. If so, the final (binding) rule would also align U.S. CDD/beneficial ownership protocols with the Financial Action Task Force’s (FATF) Recommendations (2012) on transparency and beneficial ownership and the G-20’s High Level Principles on Beneficial Ownership Transparency (2014).
For an extended discussion of the Proposed Beneficial Ownership Rule—particularly its key components, fit within the U.S. Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) framework, and rule-making history—see Hdeel Abdelhady‘s article, Proposed US rule requires banks to collect beneficial ownership information, which appeared in the November 2014 edition of Butterworths Journal of International Banking and Financial Law.
Proposed U.S. Rule Requires Banks to Collect Beneficial Ownership Information
A proposed Financial Crimes Enforcement Network (FinCEN) rule introduces a new requirement that financial institutions identify beneficial owners. If adopted in final rule form, the proposed rule will take effect one year after its effective date. This article briefly discusses some of the beneficial ownership requirements of the Proposed Rule.
FIFA, the U.S. Financial System, and U.S. Jurisdiction Over “Foreign” Parties and Events
U.S. dollar and financial system dominance facilitate the extraterritorial reach of U.S. law. For example, foreign transactions that are denominated in U.S. dollars and processed through the U.S. financial system “touch” the United States and create a jurisdictional nexus to foreign parties, property, and events associated with those transactions.
Cross-Compliance for Financial Institutions: the Anti-Corruption-AML Nexus
U.S. investigations of financial institutions for potentially corrupt business relationships with family members of government officials underscore policy links between anti-corruption and anti-money laundering regimes involving dealings with Politically Exposed Persons. This article discusses those policy links and suggests that financial institutions facilitate information sharing for compliance across internal lines.