(English) US signals intent to capture beneficial ownership information

By Geoff Cook

Published on Jersey Finance

Wednesday 28^th May 2014

An interesting post appeared recently on the White House Blog signalling moves by the US to capture beneficial ownership details and to report this information to the IRS. This would, if enacted, be a significant and helpful move by the US in fighting financial crime and the illicit use of shell companies.

As this is such a significant development in fighting cross border financial crime I repeat the blog in its entirety 

“Every year, money launderers, corrupt officials, tax evaders, and drug lords exploit legal loopholes to create anonymous shell companies to hide millions of dollars offshore. President Obama strongly believes that we cannot allow these abuses to continue, both in other countries and here in the United States. That’s why he has put forward a proposal to close these loopholes with the goal of making anonymous shell corporations a thing of the past under U.S. law. 

The White House announced last month as part of the President’s budget a legislative proposal to help law enforcement investigate the use of shell companies that are set up to engage in illegal activity, including the laundering of illicit proceeds. The President’s proposal would require all companies formed in any state to obtain a federal tax employee identification number. This proposal would require the Internal Revenue Service to collect information on the beneficial owner of any legal entity organized in any state, and would allow law enforcement to access that information. This proposal builds on the leadership of Senator Carl Levin (D-MI), who has long been an advocate for shuttering these tax loopholes and promoting greater corporate transparency in the United States and abroad.  

In addition, the proposal would permit the IRS to share beneficial ownership information with law enforcement officials to identify and investigate criminals who form and misuse U.S. corporate structures to launder criminal proceeds and finance terrorism through the international banking system. Such sharing would advance criminal investigations and successful prosecution of money laundering and terrorist financing cases and assist in identifying criminal proceeds and assets.    

President Obama has been a longtime supporter of corporate transparency. As a Senator, he supported Senator Levin’s proposal to identify and collect beneficial ownership information at the time a company is formed. And most recently, he and his fellow G-8 leaders agreed at the June 2013 summit in the United Kingdom that a lack of knowledge about who ultimately controls, owns, and profits from companies enables tax evasion and money laundering across borders. Leaders at that time committed to take steps to require companies to obtain and hold information on who really owns and controls them, also known as their beneficial ownership, and to ensure that this information is available in a timely fashion to law enforcement. The United States, in its June 2013 Action Plan for Transparency of Company Ownership and Control, committed to advocating for comprehensive legislation to require identification and verification of beneficial ownership information. 

The proposal released in the budget is the next step in advancing greater transparency and anticorruption efforts in the United States. We look forward to working with Congress to draft the legislation and get this important proposal signed into law.”

Caroline Atkinson is the Deputy National Security Advisor for International Economics

The largest study into the illicit use of shell companies ever undertaken was completed by eminent US and and Australian Academics and documented in their 2014 publication; Global Shell Games. Despite being the largest independent study of its kind you will not see this research in the tax lobbying pages of the blogosphere nor in the extensive campaigning material generated by the NGO community.

The Global Shell Games study exposes weaknesses in fighting financial crime, not in Jersey;  found to be 100% compliant, but in large countries such as the USA, Britain and France. The study despite being the largest and most comprehensive ever undertaken is ignored by the tax lobby and campaigning NGOS, as it wrecks their illicit capital flow theories and exposes their finger pointing ‘research’ as nothing more than publicity seeking propaganda.

The main findings of the Global Shell Games report were:-

• Nearly half (48 percent) of all replies received did not ask for proper identification, and 22 percent did not ask for any photo identity documents at all to form a shell company.
• Against the conventional policy wisdom, those selling shell companies from tax havens were significantly more likely to comply with the rules than providers in OECD countries like the United States and Britain. 
• providers in poorer, developing countries were also more compliant with global standards than those in rich, developed nations.   
• Corporate service providers were significantly less likely to reply to potential terrorists and were also significantly less likely to offer anonymous shell companies to customers who are possibly linked to terror. However, compared to the placebo a significantly decreased share of firms replying to the terrorist profile also failed to ask for identity documentation or refused service.   

Controversy around corporate transparency isn’t a new phenomena, but what is new is the US taking action to tackle the problem by making a commitment to capture more information on the real owners of companies, this is to be welcomed. Interestingly though, no mention of public registries, so it seems that the UK and France will be the only G20 countries to go down this road.

In Jersey we have been capturing beneficial ownership information on a corporate registry for over a decade and this information is available to law enforcement agencies. Jersey has been cited as an exemplar in this respect by the World Bank.

It is time for others to catch up and do more, and in this respect the US government is setting a good example to the international community and to it’s own states.