Interest in the issue of beneficial ownership of shell entities has rekindled interest in the US on measures that could impact on the role financial institutions play preventing and detecting trade-based financial crime.

Reports are emerging that a proposed regulation, first introduced by the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) four years ago, will force banks and other financial institutions into verifying the beneficial ownership of legal entities.

Tougher due diligence

The document leak from Mossack Fonseca cast a spotlight on the issue of beneficial ownership of shell entities, which can play a key role shielding the identity of perpetrators of trade-based financial crime (Trade-based Financial Crimes, 15 April 2016).

Treasury Department officials are now reported to be asking the White House’s Office of Management and Budget to approve the publication by FinCEN of a regulation that would toughen customer due diligence required of banks.

New bank requirements

If implemented, the new FinCEN regulation would require financial institutions to identify and verify, in a standardised format, the natural persons who are beneficial owners of their legal entity customers.

Details of the revived regulation are yet to emerge, for example whether it will retain the beneficial ownership definition contemplated in the regulation proposed four years ago.

Clarity needed

That proposal defined a beneficial owner as an individual who owns 25 per cent or more of the equity in a legal entity or who controls the entity in some manner.

It is also unclear whether the new proposal will require financial institutions to verify just the identity of a beneficial owner, or whether they may be called upon to verify more detailed information.

Categories: Trade Based Financial crimes News