Global Witness on Panama Papers Impact, Steps Taken by U.S. Government to Address Anonymous Companies, Need For Comprehensive Beneficial Ownership Legislation

The Panama Papers exposed the dark world of tax havens, anonymous shell companies,and the various facilitators - attorneys, incorporation agents, and others - who love them. Yesterday, The Treasury Department finalized a long-awaited rule requiring greater due diligence requirements by banks. Treasury announced a plan for new draft legislation specifically to increase transparency of the ultimate owners of American companies and to strengthen the U.S. anti-money laundering framework. While we are glad the Obama Administration clearly recognizes the seriousness of the problems here and wants to take action to address them, the fundamental question is whether their proposals will actually do the job. There remains a dire need to institute strong transparency measures that will help end the crime and corruption facilitated by these instruments of secrecy and deception.

We've seen swift response in other countries in response to the scandals laid bare by this historic leak.Government officials have resigned, others are under investigations, and still others have announced actions they plan to take to address this.

We have initially reviewed the rule and proposed legislation to see if they include the core elements needed to address this urgent problem. These include:

1. Global Witness believes that in order for banks to conduct due diligence to effectively prevent dirty money flowing through their accounts via anonymous companies, and for law enforcement and others to be able to determine the real owners of companies that may be involved in corrupt or criminal activity, they must have accurate, complete and timely information about those companies' owners.
2. The definition of a company's beneficial owner or owners must include a robust definition that includes both the concept of 'ownership' as well as 'control' to guard against bad actors using proxies to conduct business on their behalf. The threshold for disclosure ought to be low enough to cover most business activity and shouldn't provide an easy blueprint for money launderers to evade new requirements.
3. The information should be collected at the right times - both when the company is first formed and when the ownership changes.
4. Lastly, the information should be accessible to those who need it most; at a minimum there needs to be a clear mechanism for law enforcement to gain access to this information in the appropriate course of an investigation.

Unfortunately an initial analysis of Treasury's new rule indicates that it falls far short of this mark. For example, under the new rule, the threshold for reporting ownership information is 25%, and entities reporting beneficial ownership information to banks can list a senior manager - not an owner - as the primary name on the disclosure form. This means that it is possible to comply with the regulation without actually naming a beneficial owner. While ultimately it may be that the rule creates some forward momentum, the weaknesses in this rule represent a missed opportunity by the Administration to get the details right the first time.

Global Witness has reviewed a draft of the proposed legislation and based on that information, it seems unlikely the Administration's proposed bill will meet this test.If it doesn't, the Administration risks muddying the waters by offering half-measures, which could undercut more comprehensive solutions, put the U.S. out of step with the rest of the world, and increase our position as a haven for dirty money.

Global Witness continues to support stronger due diligence requirements for banks and other players in the financial system in order to prevent the U.S. from becoming a hub for the proceeds of corrupt and criminal funds generated at home and abroad. We continue to support the Incorporation Transparency and Law Enforcement Assistance Act (S. 2489/H.R. 4450) bipartisan legislation introduced in Congress by Senators Whitehouse (D-RI) and Feinstein (D-CA) and Representatives Carolyn Maloney (D-NY) and Peter King (R-NY).

And, we hope that the Administration will be willing to work with civil society and allies in Congress who have championed this issue for years to pursue meaningful and effective legislation to tackle anonymous companies that will truly address this problem in the years to come.