The International Monetary Fund (IMF) recently published a report focused on anti-money laundering efforts, as part of its Financial Sector Assessment Program for the United States. Per the program, the IMF conducts a regulatory review every five years across many U.S. financial sectors.  In this most recent report, the IMF concluded that the U.S., despite “significantly strengthening its AML/CFT regime,” continues to fail to address concerns related to shell companies and the lack of transparency regarding beneficial ownership information for U.S. corporations and trusts.

“The relative ease with which U.S. corporations can be established, coupled with their perceived credibility internationally, creates the potential for U.S. corporations to be misused for the laundering of the proceeds of foreign predicate crimes,” the report says. “Foreign persons may find it convenient to create a U.S. corporation and use it for the laundering of the proceeds of criminal activities committed outside the United States, including foreign tax evasion.”

There are no Federal laws regulating incorporation. States play a central role in controlling access to corporate beneficial ownership information, as they manage the corporate formation process and benefit from the revenue stream created by these processes.  Information gathering requirements vary widely from state to state, and no state requires persons forming corporations to name beneficial owners at the time of corporate formation.

Among the IMF’s recommendations in the report are that regulators should take steps to ensure that beneficial ownership information of U.S. corporations and trusts can be accessed by the regulatory authorities in a timely manner by requiring that the information is collected, maintained, and readily accessible. It is also suggested that regulators require all financial institutions and designated non-financial businesses, in particular trust and company service providers (including lawyers and accountants), to identify the beneficial owners of corporations and trusts and take reasonable measures to confirm those identities.  Verification of accurate and complete beneficial ownership information will not be feasible until states are required to obtain and verify such information at the time of incorporation.  Until then, increased scrutiny and comprehensive monitoring of beneficial ownership accounts is critical to an effective BSA/AML compliance program, as regulators are certain to focusing on these accounts in upcoming exams.

July 20th, 2015|