• Transparency groups say criminals could avoid new rule
  • U.S. seen as possibly undermining global transparency push

President Barack Obama touted a new rule from his administration that’s aimed at making it harder for people to hide money in the U.S. -- but it came under quick criticism from a group of organizations pushing for greater financial transparency.

Parts of the rule, which will require financial institutions to identify account holders hidden behind shell companies, make it too easy to avoid disclosing who actually owns a company, said Stefanie Ostfeld, acting head of the U.S. office for Global Witness, which advocates for greater transparency.

Her group is a member of the Financial Accountability and Corporate Transparency Coalition, which criticized the Obama administration’s new regulation during a conference call with reporters Friday. The rule’s ineffectiveness could undermine efforts to close similar loopholes around the world, the group’s members said.

Obama mentioned the new rule -- which comes in the wake of a massive leak of documents related to shell companies that has prompted global concern about financial transparency -- during remarks to reporters at the White House on Friday. He said the new measure would require banks and other financial institutions to know more about the identity of individuals who are ultimately behind accounts.

“We’re saying to those financial institutions you’ve got to step up and get that information,” Obama said.

The advocacy groups raised concerns about the rule’s requirement for naming the person who exercises managerial control over a company, rather than the person with effective control. Under the rule, financial institutions must obtain the names of anyone who owns 25 percent or more of an entity and the name of one person who has significant managerial control, such as a president or chief executive.

That means a group of five criminals could comply with the rule, access the U.S. financial systems and still remain anonymous, if they each took a 20 percent share in a shell company and then hired a nominee to be its president, Ostfeld said.

If all banks have to find out about their account-holders is one person with managerial control, “that could be a law-firm employee,” Elise Bean, former chief counsel for the U.S. Senate Permanent Subcommittee on Investigations, said during the call. “That could be someone in the British Virgin Islands, someone in the Isle of Man, and that’s really a problem."

The U.S. Treasury Department, which finalized the rule on Thursday, disputed that criticism. “A nominee or lawyer working on behalf of a company would not satisfy the requirements,” the agency said in an e-mailed statement. The rule calls for naming a person with “significant responsibility to control, manage or direct the company,” the statement said.

The American Bankers Association said it was pleased that the Treasury had extended the time before the rule takes effect -- to two years, up from one one year in an earlier draft -- and had taken into account concerns raised by the group.

“The inclusion of a two-year transition period, along with manageable expectations for customer and beneficial ownership identification, alleviates some of the potential burden" of the rule, the ABA said in a statement.

The leak of more than 11 million documents from a Panama law firm last month put the spotlight on offshore companies used to shield owners’ identities and sparked an international push for transparency. The Obama administration, which this week called for legislation to require more financial transparency and released the new rule, said the proposals weren’t in response to the Panama documents. Nonetheless, the leak highlighted the need for doing more to combat money laundering and tax evasion, officials said.

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