As part of its Financial Sector Assessment Program for the United States, a regulatory review conducted every five years, the International Monetary Fund on Tuesday also issued a report focused on efforts to prevent money laundering and the financing of terrorism. In it, the U.S., despite “significantly strengthening its AML/CFT regime,” is chided for failing to address concerns related to shell companies and the lack of transparency regarding beneficial ownership information for U.S. corporations and trusts.
“The relative ease with which U.S. corporations can be established, coupled with their perceived credibility internationally, creates the potential for U.S. corporations to be misused for the laundering of the proceeds of foreign predicate crimes,” the report says. “Foreign persons may find it convenient to create a U.S. corporation and use it for the laundering of the proceeds of criminal activities committed outside the United States, including foreign tax evasion.”
As we wrote about this week, there is no federal law for business incorporation, leaving each state to chart its own incorporation course as it sees fit. Over the years, that has led to several states—notably Delaware, Nevada, Utah, and Wyoming—attracting the lion’s share of incorporations, thanks to their minimal legal requirements. Fourteen states impose no requirement to report the identities of either shareholders or managers; twenty-four states require a limited liability company to report the identities of shareholders, but only when the limited liability company lacks managers; and only four states require a limited liability company to always report the identities of shareholders. That loose approach to beneficial ownership disclosure—who really controls a company or related bank accounts, even if they do so behind the scenes through a proxy—is coming into conflict with domestic and international anti-money laundering efforts.
“More rapid progress is needed to enhance transparency of legal persons to bolster financial system integrity,” the report says, stressing “obligations to identify and verify the identity of beneficial owners.”
Among the IMF’s recommendations are that regulators should take steps to ensure that beneficial ownership information of U.S. corporations and trusts can be accessed by the authorities in a timely manner by requiring that the information is collected, maintained, and readily accessible by authorities. It is also suggested that regulators require all financial institutions and designated non-financial businesses, in particular trust and company service providers (including lawyers and accountants), to identify the beneficial owners of corporations and trusts and take reasonable measures to verify those identities.