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

The Treasury Department’s anti-corruption watchdog on Tuesday said it would issue a new rule early next year to require shell companies to report what is known as beneficial proprietary 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 rules would require both new and existing shell corporations to register their real owners and investors with government databases. The Financial Crimes Enforcement Network, known as FinCEN, has announced the start of a 60-day public comment period on the rule ending on February 7, 2022.

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 buying real estate.

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 types of entities 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 prior to the rule’s enactment will have one year to file an initial report, while those incorporated after the rule’s entry into force will have 14 days to file.

FinCEN Acting Director Himamauli Das said: “FinCEN is actively targeting people who will exploit anonymous shell corporations, front companies and other loopholes to launder money for criminals, such as 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 revelations include key investigative reports based on the Panama Papers, the Paradise Papers, and the Pandora Files. 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.

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 for cash. When the shell company sells the penthouse, the proceeds from that sale will no longer look like illegal 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 petitioner 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 Department also said this week that in addition to requiring companies to establish beneficial ownership information reports, 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 ahead of the Summit because Democracy opens 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.

Correction: An earlier version of this story incorrectly cited the regulatory date, which has yet to be published.