Posts Tagged ‘incorporation transparency’


FinCEN overreaches on beneficial ownership

March 22, 2012

The Democrats in Congress weren’t making much progress with their silly attempt to force a federal mandate down the throats of state officials who register and regulate corporations.  Despite arm-twisting and getting the Obama administration on board with Sen. Levin’s “incorporation transparency” bill, and getting Time magazine to write a glowing piece about the proposed law, the bill’s sponsors are stuck.

So what have they done?  Pres. Obama’s Treasury Department has established a rule that Congress could not get passed as a law.  Rather than getting the states to hunt down the “beneficial owners” (ie, the true owners of the corporation), the new rules established by FinCEN, an agency within Treasury, will require banks to discover the beneficial owners of all their commercial accounts.  This burden on the compliance division of banks will not be well-received by the business end of a still recovering financial sector.

Giving the states an unfunded mandate through a law would be bad enough, but imposing a costly regulation on the private sector through a backdoor rule is even worse.

This rule will not prevent terrorist financing or secret business activities by Iran.  The effect will be to increase tax revenues to the federal government by forcing banks to figure out what entities may be subject to additional American taxes.  If it is discovered that the customer is subject to a foreign tax, it may well be that the State Department will be lobbying the governments of those countries for a reciprocal law or rule to target Americans who off-shore their wealth.

The rule will also gum up the works at American financial institutions by creating new regulations that banks will have to pay for by increasing bank fees for ordinary customers.

From Complinet with a hat tip to Bachir El Nakib:

U.S. Treasury proposes due diligence and beneficial ownership clarifications for financial firms

Mar 01 2012 Brett Wolf

U.S. financial institutions’ obligations to know their customers have for years been implicit in anti-money laundering rules, but the time has come for an explicit rule to clarify and strengthen those requirements, especially with regard to accounts held by legal entities, the U.S. Treasury Department said on Wednesday.

Treasury’s Financial Crimes Enforcement Network (FinCEN), proposed such a rule and called for industry feedback. It cited concerns about “shell” companies that aid money laundering, terrorism financing, weapons proliferation and tax evasion by hiding the identities of participants from law enforcement authorities in the United States and abroad.

Ideally, financial institutions can mitigate such risks by conducting customer due diligence (CDD), which involves obtaining so-called “beneficial ownership” information necessary to reveal the people behind the legal documents.

Although AML regulations stemming from the USA Patriot Act clearly require CDD and more thorough enhanced due diligence measures in the relatively high-risk private banking and correspondent banking arenas, there is more ambiguity in other business lines, sources say.

Still, financial institutions are clearly required to know their customers well enough to develop a risk profile and spot transactions that are suspicious, which requires knowing who is behind accounts, FinCEN says.

“The explicit requirement that a financial institution know its customers, and the risks presented by its customers, is basic and fundamental to both serving those customers and implementing a program that protects a financial institution from abuse by illicit actors,” said FinCEN Director James Freis, Jr. “The comments we receive will help us balance the information needs of law enforcement with the responsibilities placed on the financial industry.

“Broad public input … will assist FinCEN in considering a CDD obligation that would bring consistency and uniformity both within and across financial institution sectors. With this consistency, FinCEN seeks to disrupt the ability of criminals to hide their assets behind the shroud of anonymity.”

Lack of “uniformity and consistency”

FinCEN expressed concern that its efforts over the past decade to highlight and clarify financial institutions’ obligations with regard to CDD and the collection of beneficial ownership information may have been insufficient. Specifically, it said it was “concerned that there is a lack of uniformity and consistency in the way financial institutions address these implicit CDD obligations and collect beneficial ownership information within and across industries.”

It cited a beneficial ownership survey it conducted in 2008 and industry reaction to guidance it issued a year later, both of which it said suggested that not all financial institutions understood their obligations. It also cited recent regulatory actions against several banks and broker-dealers, including the high-profile actions targeting HSBC Bank USA and Wachovia Bank (now part of Wells Fargo).

It added that it envisions a requirement obliging financial institutions to collect beneficial ownership information for all account holders, with possible “limited exceptions based upon lower risk.”

FinCEN’s proposal is primarily aimed at banks, brokers-dealers, mutual funds, futures commission merchants, and introducing brokers in commodities. However, it said it is also considering extending a rule to money services businesses, insurance companies, casinos, non-bank mortgage lenders or originators and other entities with AML program rules.

Historical challenge has new implications

Determining beneficial ownership of certain corporate accounts has long been a challenge for U.S. financial institutions, primarily because some states do not collect the information during the incorporation process. Some financial institutions have argued that the government is in a better position to determine beneficial ownership and therefore should shoulder the burden.

FinCEN’s proposal notes that Treasury’s “strategy” to address “ongoing abuse of legal entities” will also depend on Congress enacting a law requiring that the states collect beneficial ownership information…


Rift in Treasury?

March 12, 2010

According to, a leading AML news source, federal regulators released guidance last Friday suggesting that banks take greater steps to verify the beneficial ownership (the true owners) of their customers.  In theory, this would help uncover shell companies in the U.S. acting in behalf of nefarious countries like Iran. spoke with Heather Lowe, lawyer for the Global Financial Integrity program, who said the guidance was “unexpectedly weak” because many insiders anticipated a requirement that banks “shall” rather than “may” verify beneficial ownership.

FinCEN, one of the four major federal agencies under Treasury’s Office of Terrorism and Financial Intelligence (TFI), was one of the regulators endorsing the new guidance.  It is somewhat surprising that FinCEN would endorse the weak guidance given the strong support for beneficial ownership disclosure by David S. Cohen, Assistant Secretary for Terrorist Financing—one of TFI’s other major agencies.

In testimony before Congress last November, Cohen said that, “the Administration believes that S. 569,” which would require the disclosure of beneficial ownership information by corporations, “is an important step in the right direction on this issue…”

James H. Freis Jr., the director of FinCEN, like most senior officials at TFI, is a Bush-era holdover and financial crimes expert.  David Cohen, on the other hand, is a Democrat lawyer selected by Pres. Obama and Sec. Tim Geithner.  In fairness to Cohen, his testimony included comments that ownership transparency has to be balanced with the need for financial and legal efficiency, and he does have a legal background in white collar financial crime.

Still, it would appear that Mr. Cohen has aligned himself very closely with Sen. Levin and the “incorporation transparency” proponents, while more experienced Treasury officials are more circumspect.

If my suspicion is incorrect, I would welcome a rebuttal from any Treasury insider.


Time Magazine goes to bat for batty bill

February 4, 2010

Ken Stier at Time Magazine has written an illogical piece of “journalism,” that reads like a lobbyist’s brief in behalf of S. 569, Carl Levin’s “incorporation transparency” bill that would supposedly help control terrorist financing.

Stier starts off his article by suggesting that nobody knew and no action could be taken against the Iran’s shell Alavi Foundation (which owns property in the United States to help funnel money back into Iran’s nuclear program) because we lack a law such as the one proposed by Levin.  But Rachel Ehrenfeld has been writing for years about the failure to crackdown against the Alavi Foundation.  The nature of its ownership was not unknown.  The delay in action against Alavi was a failure of reluctant law enforcement, not a failure of existing federal law.

From Time:

Managers of an Iranian charity started by the Shah faced a dilemma with its American properties, as Washington tightened a squeeze on all entities tied to the Islamic Revolutionary Government. But U.S. law allowed a simple solution for the renamed Alavi Foundation: disguise its properties’ real owners through the use of shell companies, multiple ones if need be.

So, its 36-story skyscraper in midtown Manhattan, registered as the 650 Fifth Avenue Company, was owned by Assa Corporation, a New York shell company, which listed its owner as Assa Company Ltd., a Jersey, Channel Islands entity. In most cases that’s as far as investigators get — but here authorities were eventually able to determine that Assa was in fact entirely owned by the state-owned Bank Melli, which is banned in the U.S. for supporting Tehran’s nuclear program.

Exposing this entirely legal labyrinth of ownership took years of interagency pick-and-ax work. In the end it demonstrated how nefarious activity — even as high profile as this — can go on for years, right under authorities’ noses. Read the rest of this entry ?


Analysis of S. 569 on

January 25, 2010

One of the most popular posts here on Money Jihad (according to WordPress‘s stats) has been my review of the Incorporation Transparency and Law Enforcement Assistance Act (S. 569) currently proposed in the U.S. Senate. has posted the lead and link to my original post here. Take a look!  OpenCongress provides blog links to additional perspectives on the bill, including an October article I had never seen before from that called S. 569 “another Sarbanes-Oxley” that would put small businesses “under seige.”

Incorporation Transparency and Law Enforcement Assistance Act


“Anti-money laundering” bill before U.S. Senate

January 1, 2010

The U.S. Senate considered legislation called “The Incorporation Transparency and Law Enforcement Assistance Act” throughout 2009 (S. 569), and they’re not done yet.  At first glance, the bill appears to be a helpful measure to force foreign-owned businesses that incorporate in America to disclose the identity of the true corporate owners (technically known as “beneficial owners”).

Sen. Carl Levin (D-Michigan), the bill’s principal sponsor and advocate, has been using terrorism-related examples lately like arms trafficker Viktor Bout and Iranian shell companies as the primary arguments for the bill’s passage.  Unfortunately, when the legislation is examined more closely, it starts to look like “yet another” Carl Levin witch-hunt against garden variety tax evaders.

The bill would require states to collect the ownership information at the time of incorporation.  The states are further required to provide that information to state or federal law enforcement upon request.  Fair enough.  But take a look at subsection (ii) of Sec. 2009 (a)(1)(D) below.  If the bill were intended only for the U.S. to uncover attempted incorporation by terrorist front groups, how does it help us to give ownership information to another country unless that country is trying to tax that corporation’s wealth?

(D) Beneficial ownership information relating to each corporation or limited liability company formed under the laws of the State shall be provided by the State upon receipt of–

(i) a civil or criminal subpoena or summons from a State agency, Federal agency, or congressional committee or subcommittee requesting such information; or

(ii) a written request made by a Federal agency on behalf of another country under an international treaty, agreement, or convention, or section 1782 of title 28, United States Code.

In fairness to Sen. Levin and the other sponsors of the bill, maybe they believe that if we play nice and fork over information to other countries, they’ll reciprocate by giving us whatever information we need in the course of terrorist investigations.  But I can’t shake the feeling that this legislation will be primarily used to pursue tax cheats, not jihadists.

Read the rest of this entry ?