Treasury wants to crack down on shell companies, corruption with new rules

Janet Yellen, U.S. Secretary of the Treasury, speaks during an interview at the National Association for Business Economics (NABE) annual meeting in Arlington, Virginia, U.S., on Tuesday, September 28, 2021.

Amanda Andrade-Rhoades | Bloomberg | beautiful pictures

The Treasury Department’s anti-corruption watchdog on Tuesday said it would issue a new rule early next year requires incorporated companies to report what is known as beneficial ownership information (BOI) about who controls them to regulators. The new reporting requirement is aimed at tracing individuals suspected of using shell companies to conceal illicit funds or illegal activities behind dubious corporate structures.

The Financial Crimes Enforcement Network, known as FinCEN, has announced that the future rule will go into effect on February 7, 2022 and will require both new and existing shell corporations to register owners. their real owners and investors with government databases.

Ministry of Finance Department said in a fact sheet.

The Treasury hopes that these enhanced transparency rules will prevent bad actors from creating shell companies to launder money illegally and hide taxable income. The database will also eventually make it easier for law enforcement, courts and banks to track the movement of illicit funds.

Currently, some states in the US require companies registered as limited liability companies, or LLCs, to fully disclose who controls them. Some states, like Delaware and Wyoming, require virtually no disclosures, making them magnets for shellfish corporations.

Shell corporations are companies that do not engage in any actual business, but instead exist to help their owners achieve financial goals such as reducing tax bills, hiding assets property or conceal the identity of the owner in a transaction such as a real estate purchase.

The new Treasury rules will require any LLC, corporation or limited liability partnership registered in a U.S. state to provide information about all individuals who own or control at least one U.S. state. at least 25% of organizations and anyone exercising “substantial control” over the business.

The new rule is not expected to significantly affect the thousands of companies that have disclosed their controlling owners, as well as corporations engaged in legitimate business and trading companies. public. Many of these entity types are completely exempt from the new reporting rules.

But experts say it could shake the world of shady companies, especially those that rely on corporate secrecy to hide who actually owns them.

Under the new regulations, companies will be required to provide FinCEN with the owner’s name, date of birth, address and other identification documents. Companies incorporated before the rule’s promulgation will have one year to submit their initial reports, while those incorporated after February 7 will have 14 days to file.

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FinCEN Acting Director Himamauli Das said: “FinCEN is actively targeting those who will exploit anonymous shell corporations, front companies and other loopholes to launder money for crimes. crimes, such as corruption, drug and weapons trafficking, or terrorist financing,” the report said.

In recent years, shell companies registered in the United States have been caught up in major revelations about how corrupt political leaders, terrorist groups and drug cartels cover up. hide and launder their money.

These disclosures include major investigative reports based on Panama Papers, NS Paradise Papers and Pandora Papers. These three massive data leaks detail how a global network of law firms and bankers helps the very rich hide their money around the world.

How it works

Under current US disclosure laws, a hypothetical international drug dealer could open a bank account in a country like Panama, then pay someone to register a shell company. wrap them up in Delaware. The Panama account could then transfer $10 million to the shell company as an “investment” without anyone knowing who was behind the money.

The shell company could then use that $10 million to buy a luxury penthouse in Manhattan with cash. When the shell company sells the penthouse, the proceeds from that sale will no longer look like nefarious money to regulators and banks. Now they look like clean, semi-legal money that can be deposited in a US bank.

However, under the new law, in order to register a shell company, the applicant needs to provide FinCEN with the names and passport records of the people who actually control the LLC.

It’s easy to see that this new rule would make the prospect of using a US shell company to launder money much less appealing to an international drug trafficker.

The Treasury also said this week that in addition to requiring member companies to report beneficial ownership information, it also plans to increase reporting requirements for all-cash real estate transactions.

The proposed rules will be rolled out this week as part of a broader effort by the Biden administration to highlight how fighting global corruption can help strengthen democracies that lead to The first summit on democracy This weekend.

The two-day virtual event will bring together officials from around the world to renew commitments to democracy and advertise the benefits of representative government.

The administration has announced new sanctions against foreign government officials and those it accuses of corruption and human rights abuses.

Lawmakers and activists say the White House should use such tools to punish Russian oligarchs, Chinese officials and other alleged corruptors.

Treasury officials who spoke to reporters on Tuesday said their department is uniquely equipped to support those efforts because it oversees sanctions policies. Treasury wants to crack down on shell companies, corruption with new rules


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