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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.”
On May 31, the North American Securities Administrators Association (NASAA) announced it will hold a cybersecurity roundtable for industry experts to discuss latest developments as well as strategies for investment advisers and broker-dealers to protect personal client information. In addition to convening representatives from state securities agencies and the financial services industry, roundtable discussions will also feature representatives from the FBI, Treasury, and the SEC. The event will take place June 23 from 9 a.m. to 3:30 p.m. in Washington, DC. Registration information can be accessed here.
On May 4, the FBI’s Internet Crime Complaint Center released a public service announcement (I-050417-PSA) citing losses to U.S. businesses of nearly $1.6 billion due to social engineering wire transfer and other payment scams between October 2013 and December 2016, with approximately one fifth of the losses coming in the last seven months of 2016. The FBI defines the crime as Business E-mail Compromise (BEC), a sophisticated scam targeting businesses that regularly perform wire transfer payments and/or work with foreign suppliers, and often specifically involves E-mail Account Compromise (EAC) of individuals that perform wire transfer payments. Victims range from small businesses to large corporations and deal in a wide variety of goods and services. According to the FBI, the five main BEC/EAC scam scenarios are: (i) a business working with a longstanding or trusted foreign supplier, where a perpetrator may impersonate the supplier and seek a change in payment instructions by e-mail, phone or fax; (ii) a high-level business executive whose e-mail account is compromised receiving or initiating a request for a wire transfer; (iii) a third party business contact receiving fraudulent correspondence, such as requests for invoice payment, through a compromised email account; (iv) impersonation of a business executive or attorney; and (v) data theft. The FBI also cites 2016 trends including a 480 percent increase in complaints filed by title companies targeted by scammers as part of a real estate transaction, a 50 percent increase in complaints filed by businesses working with dedicated foreign suppliers, and a large increase in W-2 and PII phishing occurring during the 2016 tax season.
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