May 9, 2016
The U.S. Departments of Treasury and Justice announced a raft of measures and proposals to address critical vulnerabilities in the U.S. financial system on May 5th, following actions taken by other countries in response to the Panama Papers disclosures. GFI welcomes the introduction of these measures after a four year process but urges Congress to fix serious gaps in the requirements for identifying the beneficial owners of companies.
The centerpiece of the announcement was the finalization of Treasury’s customer due diligence (CDD) rule for financial institutions. The final rule requires banks to identify one individual who has significant responsibility to control or manage the company, defined to be a manager, as well as individuals—if any—who have a 25 percent or greater ownership interest in a company. Where no individual with a 25 percent interest is identified, the only person named will be the manager.
“Treasury has muddled the concept of control in their definition of ‘beneficial owner’. Managers—as persons who conduct the day-to-day operations of a company—are not beneficial owners. There is a difference between the control that someone exerts over a company despite not having an ownership interest, such as rights to veto board decisions and to appoint directors and the day-to-day management control of the company,” said Liz Confalone, Policy Counsel. “When we talk about control in the beneficial owner context, we’re talking about the former. That is the distinction missing in Treasury’s definition. This means that banks can fulfill their due diligence requirement without identifying any actual beneficial owner. This is a problem for everyone, but Congress has the power to adopt new legislation to fix it and should not hesitate to do so.”