"But this legislation already exists. The Incorporation Transparency and Law Enforcement Assistance Act, which has bipartisan sponsors in the House, would do everything the White House claims to want, requiring states and the Treasury Department to collect beneficial ownership information at the time of incorporation, and make that information available to law enforcement. It's unclear why the Administration would need to rewrite what already has been written, and since they've released nothing official about their own draft legislation, it creates suspicions that they are trying to undermine the current effort in Congress, with analogous flaws to the Treasury rule."
The new rules exclude existing shell corporations. Shruti J. Shah, vice president of programs and operations at Transparency International-USA, explains, "The rules also do not extend the requirement to collect beneficial ownership information of accounts established before the rules' implementation date, creating a major gap in the information collected."
So if people are already using shell companies for "money laundering, corruption, and tax evasion" (and never mind financing terrorism, running fraud scams or storing the gains from crimes) they can keep doing so with impunity.
The new rule requiring financial institutions to get names of people or entities owning 25 percent or more of a corporation and the name of one manager (president or chief executive) is like an instruction manual telling shell corporations to register claiming five owners or entities with 20 percent each. They can stay secret. Or they can use trusts, which can continue to hide their beneficiaries. (For more on this see Financial Times, "US tax havens: The new Switzerland.")
As for the significant manager, Bloomberg reports, in "Obama's Disclosure Rule for Shell Companies Weak, Advocates Say":
"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.'"
Quartz also quotes Bean, in "A design flaw in Obama's new Panama Papers rule could help shell companies dodge cops and taxes":
"The internationally accepted definition of beneficial owner -- the actual human who truly gains from the company's equity -- is altered in the law. Under the new rules, anyone who owns less than 25 percent of the company need not be reported, and the appointed president of a shell company can be listed as the beneficial owner.
"'That's kind of the opposite of what the term as has always meant,' Elise Bean, the former chief counsel of the Senate Permanent Subcommittee on Investigations, told reporters last week. 'At Mossack Fonseca, they could say, 'I'm appointing my law firm employee the president of the shell company, and now under US rules, I can name my employee the beneficial owner of that company.' That just doesn't make sense.'"
That "law-firm employee" could be, for example, an employee of the firm registering the shell corporation.
In addition, the banks are given two years before they begin checking corporations, giving criminals time to shift and adjust their corporations and funds accordingly.
Bloomberg explains the concerns of watchdog groups:
"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."
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