Global Financial Integrity (GFI) has criticised one of the US Treasury’s recently published rules on customer due diligence (CDD) for financial institutions (Trade Based Financial Crimes, 13 May 2016).

The Washington-based non-profit research and advisory group intent on curtailing illicit financial flows is now urging Congress to use its powers to amend the rule.

Beneficial ownership

GFI is unhappy with the Treasury’s final rule, which requires banks to identify one individual who has significant responsibility to control or manage the company, defined to be a manager, as well as individuals – if any – who have a 25 per cent or greater ownership interest in a company.

Where no individual with a 25 per cent interest is identified, the only person named will be the manager.

Poor definition

Policy counsel at GFI, Liz Confalone explains the problems she sees with the final rule:

“Treasury has muddled the concept of control in their definition of ‘beneficial owner’. Managers – as persons who conduct the day-to-day operations of a company – are not beneficial owners.

There is a difference between the control that someone exerts over a company despite not having an ownership interest, such as rights to veto board decisions and to appoint directors and the day-to-day management control of the company,” she says.

Fix legislation

“When we talk about control in the beneficial owner context, we’re talking about the former. That is the distinction missing in Treasury’s definition.

This means that banks can fulfill their due diligence requirement without identifying any actual beneficial owner. This is a problem for everyone, but Congress has the power to adopt new legislation to fix it and should not hesitate to do so,” she advises.

Categories: Trade Based Financial crimes News