The U.S. Treasury Department’s anti-money laundering unit is changing leadership, as Kenneth Blanco stepped down on April 9 after being the director of the department since late 2017. Michael Mosier, a counselor to the Treasury’s deputy secretary, stepped in as director on April 11 and faces the challenge of implementing regulations associated with an anti-money laundering law that was passed in January of this year. This law was designed to create a registry of corporate ownership in an attempt to track illicit money by identifying shell companies designed to launder money.
The implementation of the corporate ownership registry may prove to be challenging for Mosier, as he seems to have inherited a department with a shortage in the funding, manpower, or technology required to create a corporate ownership registry on the scale desired.
Regulators are confronting a significant challenge in combating the use of financial systems for money-laundering activities. Regulatory and governing bodies have implemented many different regulations to assist organizations in preventing and/or detecting such nefarious activities. But when these issues arise, they can be traced back to opaque corporate entities that are linked to unaware individuals, other businesses or government agencies, and made-up addresses.
The International Monetary Fund (IMF) reports that between 2.5% and 5% of the world’s GDP is directed to criminal activities such as money laundering, drug trafficking, bribery and corruption, terrorist financing, etc. As a result, the need to understand who the Ultimate Beneficial Owner (UBO) is for the organizations we do business with has become more critical for banks and other financial institutions when managing AML and third-party risk.
The Financial Crimes Enforcement Network (FinCEN) will require corporations to report beneficial ownership, but the issue is that FinCEN has no process in place to verify this information, which could result in inaccuracies in the registry. Who will be in charge of the verification process is still unknown; with banks requesting verification authority, it’s also possible that the power will be bestowed on state officials. Also, compliance officers are becoming skeptical about how this new regulation will make it more difficult to follow existing regulations.
Banks are concerned that if the information on the corporate ownership registry is inconsistent with a client’s information, or if the client has yet to submit information to FinCEN, a financial institution may be forced to refuse to do business with a client. It will also be important for data within the corporate ownership registry to be secure in light of the Treasury Department leak last year.
FinCEN is in no rush to release these new regulations until they are ready, which is expected to be early next year.