The U.S. Treasury Department is trying to strike a balance between the need for information from banks to help it nab hidden account owners and administrative demands that a rule toward that end might create for the banks.
Senior Treasury officials said the department will release in coming weeks a proposal aimed at money laundering that would force financial institutions to report the "beneficial," or true, owners of certain accounts.
Banks have been anxiously awaiting the proposal's language, fearing that a strict approach could mean they have to spend huge amounts of time and money investigating the beneficial owners of thousands of legal entities they do business with.
David Cohen, a top Treasury official, said in an interview that he expects the rule to require different degrees of inquiry in different circumstances.
"There is a recognition that the financial sector is complex, and one-size-fits-all is not suitable here," said Cohen, Treasury's undersecretary for terrorism and financial intelligence, in an interview last week.
Cohen declined to discuss specifics of the rule, but he said the extra information will help the U.S. government pursue money launderers trying to hide their identities behind shell companies and other legal entities, even if banks don't fully check the accuracy of the information.
"One of the motivations is for law enforcement during the course of their investigations to not hit that brick wall and be able to get behind the account holder," Cohen said.
U.S. authorities have stepped up their enforcement of anti-money laundering laws in an effort to clamp down on conduct ranging from drug trafficking to terrorism, and have entered into cease and desist orders with top banks including JPMorgan and Citibank related to weak internal controls.
In December, HSBC agreed to pay a record $1.9 billion, in part to resolve charges that it failed to detect a river of drug money flowing from Mexico into the United States.
Treasury said in February 2012 it planned to propose a rule to force financial institutions to determine the true owners of accounts held in the names of legal entities such as corporations. It held five public hearings around the country and received around 90 comment letters, but has not yet come out with its proposal.
Some banks, broker-dealers and other firms already seek such information about their riskiest accounts, but the rule was envisioned as a way to provide a more uniform approach for the industry and determine exactly when banks need to obtain such information.
Some firms expressed skepticism about how valuable that information could be, since many states don't even collect information about who a beneficial owner is when incorporating a new company, making it difficult for banks to vet the details without launching a full-scale investigation into each account.
"At this point, it is simply not feasible to impose broad-based beneficial ownership requirements on U.S. financial institutions in the absence of congressional legislation requiring the collection and maintenance of publicly available beneficial ownership information at the time legal entities are created in the United States," the Financial Services Roundtable said in its comments about the rule last year.
But just having the name of a beneficial owner, even if it isn't verified, is still useful, officials said. If an account signatory lies about who the owner is, it could be a misrepresentation that authorities can act on.
"Make somebody say 'I'm the beneficial owner, I'm not the beneficial owner.' Make that a real person," Chip Poncy, who heads the Treasury office of strategic policy for terrorist financing and financial crimes, said at an industry conference in Florida last month.
Law enforcement officials "have insisted ... this is useful, either for purposes of proving criminal intent or just as having leverage in an investigation," he said.
Treasury officials have also expressed support for legislation that would require the government to collect more information about ownership when legal entities incorporate.
During a speech at a separate anti-money laundering conference in Florida on Tuesday, Jennifer Shasky-Calvery, who heads Treasury's anti-money laundering unit, the Financial Crimes Enforcement Network, or FinCEN, said the government must do more to make information about beneficial ownership available.
Cohen also said in the interview that enforcement bodies have stepped up efforts to build cases against individuals, in addition to institutions, for money laundering lapses.
U.S. authorities faced public backlash after the HSBC settlement for failing to punish any bankers, either criminally or civilly, and Cohen said FinCEN is looking more closely at existing powers that could be used to hold individuals responsible.
"All of these entities act through people," Cohen said. "That had not been a priority in FinCEN enforcement actions in the past."
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