Banks Will Be Required To Inform U.S. Treasury On Identities of Shell Company Owners

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Why Shell Companies Have A Bad Name

According to The New York Times, There is a reason why the rich use shell companies to purchase expensive real estate in New York and Miami and why these individuals do their best not to report their information to Treasury.

It was only when the Panama Papers leaked into the mainstream media that the public became aware of the way the wealthy use the banking system to their benefit. When the documents of the firm Mossack Fonseca reached the media, it revealed offshore companies linked to 143 politicians and their families.  Their shell companies did business with the major international banks, like HSBC and UBS, and it sparked public outrage.

In the emails disclosed among the Panama papers, it was apparent that the banks and the law firms had real trouble to figure out who was responsible for identifying the people behind the shell companies. This was the direct cause of the new customer due to diligence law, according to Jennifer Calvery of Financial Crimes Enforcement Network.

So Now The Government Will Spy On You

The US is contemplating a rule that will force your bank to spy on you to find out your identity if you are hiding behind a shell company at the moment.

Federal law mandates banks with branches in the US to verify the identity of clients who open accounts with them in the US.  A loophole in the regulations makes it possible for individuals who set up accounts in the name of shell companies, to remain anonymous.  This is the loophole the government is trying to close with the customer due diligence rule (C.D.D.).

The new rule will require banks to identify every owner of 25% or more of corporate entities that open bank accounts as well as the identities of the individuals in control of the same.

Banks know that they are required to know their customers. What the new rules would do, is to make it abundantly clear that when the customer is a legal entity, banks have to ascertain who the beneficial owner of that customer is.

Until now, the US has been a sort of haven for shell companies.  US states can register financial entities and structures without even asking for the names of the people behind them, and due to the loopholes, many banks can make a choice not to expend the resources to identify the owners of shell companies.

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According to a spokesman of the Florida International Bankers Association, the lack of a legal imperative is an obstacle for many banks that are already trying to identify those behind shell companies. Spokesman David Schwartz believes that the states where these shell companies are incorporated should be legally required to determine the owners. That he feels, would make it a great deal more comfortable for the banks to comply with the requirements.

To achieve the above, Treasury is working closely with members of Congress and legislation had been proposed that will require states to maintain registries of shell company owners. If this rule is to make a real difference, Treasury will have to get it right. Initial versions of the law defined shell companies in a manner that would allow managers and not owners, to be listed. This will not do.

Only if the ramifications of providing erroneous information to the banks outweigh the benefits, and only if the forms submitted by the customers do not indemnify the banks from further verification, will the rule succeed in changing the status quo. Click here to email us and start your project.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intended for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services.  This article cannot serve as a substitute for such professional services or advice.  Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation.  This article is subject to change at any time and for any reason.

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Fulton Abraham Sanchez, CPA

Fulton Abraham Sánchez, CPA I am Certified Public Accountant, specialized in Tax Planning & Offshore Strategies for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution. You can email me and follow us on Facebook : FAS CPA & Consultants.

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