Russian oligarchs, fearing confiscation of billions if they cross Vladimir Putin, apparently love to hide their assets in the United States. It's a bitter irony of the global financial system: Money made by illegal conduct in one country can best be protected by the rule of law in another.
The key to avoiding accountability is secrecy.
The U.S. Treasury Department's Financial Crimes Enforcement Network (Fincen) recently announced the second of three proposed rules to provisions of AMLA designed to collect basic ownership information from businesses. The resulting database will be accessible by financial services firms for compliance with Know-Your-Customer requirements; however, the details over how they'll access the information is still to be determined. This is a necessary step in the fight against money laundering and toward ending the abuse of anonymously owned shell companies.
The AMLA can be a powerful weapon in this fight, but it will be useless in preventing illicit shell companies if banks and law enforcement authorities don't trust or can't use the information collected. To that end, Fincen must verify the beneficial ownership data in the directory. If Fincen collects identification and verifies the data, users of the registry will be able to rely on that information, thereby streamlining investigations and the checks banks must perform before granting someone access to the U.S. financial system.
If the evidence of the dangers of these secret vehicles was not clear enough already — including multiple cases of drug cartels using anonymous companies to fuel the opioid crisis or human traffickers using them to hide behind the women and children they exploit — the reprehensible invasion of Ukraine should put the question to rest. The difficulties in finding the funds of Russian oligarchs placed the issue squarely in the headlines for everyone to see.
The urgent need for these rules is clear. The need to get them right is no less urgent.
Fincen should take a simple step to pave the way for banks, law enforcement and the business community to work together with the federal government to root out anonymous shell companies. It should verify the beneficial ownership data in its directory.
With a reliable database of business owners, banks will be able to be more active and effective partners in the fight against money laundering. They will be able to target their resources to the most material risks rather than doing rote screening of names and companies. To ensure verified data is most useful, banks should also be able to use the information for all their financial crime mitigation programs and share the information with all those who work at the bank to screen for criminal and corrupt actors.
A verified, reliable database will also help the small businesses that must comply with the new rules. Compliance is not difficult — and simpler than the process they now must go through with their banks. A typical small business in the U.S. has a single owner who will provide four simple pieces of information. Without verification by Fincen, business owners might accidentally transcribe letters in their name or address during registration and would not be notified of the error by the government. A subsequent request for credit might be unnecessarily denied or delayed and create problems for that business's operations. If the data is verified, a typographical error could be identified immediately — like a credit card verification during an online shopping purchase — and instantly corrected, saving both time and frustration.
A similar database was established in the United Kingdom without verification, and the problems were immediate and numerous — bogus entries and unusable data proved to be widespread. One journalist who explored the U.K. directory found businesses owned by "Mr Mmmmmmm Yyyyyyyyyyyyyyyyyy", and "Mr Mmmmmm Xxxxxxxxxxx" whose business address was listed as "Mmmmmmm, Mmmmmm, Mmm, MMM". This journalist also cited reports of 4,000 businesses owned by individuals under the age of 2 years old and one who had not yet been born. These entries are clearly of little use to police, prosecutors and banks seeking to identify the true individual(s) behind an entity.
Verification carries numerous benefits for legitimate businesses and users of the data and minimizes opportunities for evasion by bad actors.
The threat of money laundering puts small and large businesses, U.S. national security and the banking system at risk. The U.S. will soon have the information needed to address that threat — if only it can be relied upon.
