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Financial Services Law Insights and Observations

Agency officials urge Congress to create central repository to combat money laundering

Federal Issues Senate Banking Committee FinCEN Beneficial Ownership Financial Crimes Department of Treasury OCC FBI Of Interest to Non-US Persons Anti-Money Laundering Combating the Financing of Terrorism CDD Rule Hearing

Federal Issues

On May 21, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “Combating Illicit Financing By Anonymous Shell Companies Through the Collection of Beneficial Ownership Information.” The Committee heard from the same panel of witnesses who testified in November on the need for modernization of the Bank Secrecy Act/Anti-Money Laundering regime. (Covered by InfoBytes here.) Committee Chairman Mike Crapo opened the hearing by stressing the need to discuss ways in which beneficial ownership information collected in an effort to deter money laundering and terrorist financing through anonymous shell companies can be made more useful.

Financial Crimes Enforcement Network (FinCEN) Director Kenneth Blanco emphasized that while the collection of beneficial ownership information occurs when an account is opened at a financial institution, as required under FinCEN’s Customer Due Diligence Final Rule (CDD Rule), “it is but one critical step toward closing this national security gap.” Blanco stressed that “[t]he second critical step in closing this national security gap is collecting beneficial ownership information at the corporate formation stage,” and stated Congress should develop a streamlined solution.

FBI Financial Crimes Section Chief Steven D’Antuono agreed with Blanco and said that, from a law enforcement perspective, a central repository would be “extremely helpful.” D’Antuono emphasized his support for the creation of a regime to collect and consolidate beneficial ownership information, which would enable law enforcement agencies to easily identify the beneficial owners of shell companies and help the agencies address illicit financing activity in a timely fashion. He encouraged Congress to consider other countries’ beneficial ownership disclosure requirements when developing legislation.

OCC Senior Deputy Comptroller for Bank Supervision Policy Grovetta Gardineer also agreed that a standardized approach for beneficial ownership data verification should be established. She highlighted the compliance burden on banks caused by the implementation of the CDD Rule, and suggested that Congress could establish a nationwide requirement, or a centralized database, for legal entities to provide, update and verify beneficial ownership information. In addition, because cross-border transaction activity can present higher risks for money laundering and terrorist financing, she recommended that “foreign legal entities be required to report ownership information either at the time of state registration or upon establishing an account relationship with a U.S. financial institution.”

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