News

The US admits it is a global money-laundering risk (or at least that is what I interpret)

18/02/2020

The U.S. Cites Lack of Corporate Ownership Information as a Top Illicit Finance Vulnerability - The U.S. Treasury Department on Thursday cited a lack of information about the true owners of corporate entities as a top illicit finance vulnerability.

Misuse of legal entities to hide a beneficial criminal owner or an illegal source of funds,

  • “continues to be a common, if not the dominant, feature” of illicit finance schemes occurring in the U.S., the Treasury said in a document laying out the U.S. strategy against terrorist or other illicit financings.

The document identifies key threats, vulnerabilities and priorities for disrupting and preventing illicit financial activities within and transiting the U.S. financial system, building upon and updating a similar strategy document issued in 2018, the Treasury said.

Key illicit finance threats include money laundering derived from various crimes, drug trafficking, terrorism and proliferation financing, organised crime or corruption. The U.S. has multiple sanctions programs aimed at combating the myriad threats. Illicit actors exploit key vulnerabilities in the U.S. financial system, such as gaps in ownership, the document said.

  • “The same strengths that make the U.S. an attractive destination for legitimate investment...also can attract criminals and other illicit actors seeking to hide or disguise their ill-gotten gains or fund their dangerous plots,” the strategy document said.

The document identified three strategic priorities:

  1. increasing transparency and closing gaps in the U.S. anti-money laundering and countering the financing of terrorism (AML/CFT) framework;
  2. improving the efficiency and effectiveness of the AML/CFT framework; and
  3. enhancing current AML/CFT operational capabilities.

It advocates many government actions, including legislative proposals, expanding AML/CFT regulatory remits, and supporting innovation and encouraging public-private partnerships, the Treasury said.

One area where the government seeks to enhance its operational capabilities is through wider use of artificial intelligence and data analytics, the document said, citing its help with identifying potential front companies acting for North Korea and Iran.

Though the U.S. is considered a global leader in combating illicit finance, international bodies such as the Financial Action Task Force (FATF) have found significant weaknesses, including the lack of beneficial corporate ownership information.

  • The simplicity and low cost of opening a company in the U.S. give criminals a path to conceal financial crimes through a shell or front companies, sometimes layered across jurisdictions known for secrecy, the document said.

Drug trafficking organisations (DTOs) previously handled the laundering of their proceeds in-house, but now are increasingly turning to professional money laundering networks (PMLNs) that receive a fee or commission for their services, according to the document. The PMLNs are constantly evolving and adapting to law enforcement activity, regulatory actions and growing private sector awareness, the document said.

Banks are required, under rules promulgated by the Treasury’s Financial Crimes Enforcement Network (FinCEN), to identify the beneficial owner of a company when it opens an account, but the strategy document said this

  • “is not a comprehensive solution” to addressing the problem.

Congress is considering legislation to require companies to identify their beneficial owners at the time of formation; a bill passed the House of Representatives last year.

The administration is working with Congress and any law enacted should conform to the FinCEN rule’s definition of a beneficial owner, the strategy document said.

Another vulnerability, often exploited through the use of shell companies, is the purchase of real-estate, according to the strategy document.

Real estate is attractive due to its relative stability and the limited AML obligations involved in certain parties to the transaction, especially in the case of all-cash purchases.

To mitigate some of the risks, title insurance companies are required under geographical targeting orders (GTOs) to disclose to FinCEN the beneficial owners of real-estate buyers of residential real estate in 12 cities in deals above USD 300,000.

More than 6,300 transactions, or 35 per cent of the reported deals, involved subjects previously identified in a suspicious activity report (SAR), according to the strategy document. Nearly 400 foreign buyer transactions involved a purchaser who is the subject of a SAR, the document said.

  • “Ultimately, anonymity in real estate purchases can be abused in the same way as anonymity in financial services,” the document said.
  • “Treasury is committed to working with Congress to minimise the risks of the laundering of illicit proceeds through real estate purchases.”

Sourced from

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