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Shah and Heywood: FATF report finds U.S. weak on transparency of beneficial ownership

You arrive in a new city on a rainy day and check into your top floor hotel room, only to find the roof is leaking.

When the receptionist comes to check, he looks up and says, “I don’t see what the problem is, madam. There is clearly more roof than holes on average.”

This has a striking resemblance to the recent FATF report.

The new report on the United States by the global anti-money laundering body known as the Financial Action Task Force or FATF has a number of positive findings.

The report notes the good coordination and extensive use of financial intelligence by U.S. authorities. It also rates as effective the investigation, prosecution and sanctioning of money-laundering, as well giving high marks to international cooperation by the U.S. with other countries. The U.S. achieves over 1,200 convictions a year and aggressively pursues high level confiscation in large and complex cases.

However, the report finds significant weaknesses, with the most important being related to gaps in access to information on the ultimate owners of companies (beneficial owners).   

We have repeatedly pointed out this gap, including when we discussed these issues with the FATF secretariat and the peer review team when they conducted their on-site visit in the U.S., earlier this year. As is becoming widely recognized, especially following the Panama Papers, anonymously-held companies play a major role in furthering corruption and crime. As they allow corrupt politicians and other criminals to hide, transfer and enjoy their illicitly obtained wealth, they fuel abuses of power and exacerbate a culture of impunity.

FATF warns that the weaknesses regarding beneficial ownership information undermine the effectiveness of preventive and supervisory measures by the U.S., and negatively impact financial institutions and other businesses and professions in their efforts to tackle money laundering. The FATF findings are similar to our own research released this time last year which showed that the  U.S. scored among the lowest of all G20 countries for its beneficial ownership legal framework, assessed as “weak."

Additionally, FATF is critical of the weak supervision and limited anti-money laundering program requirements for gatekeepers such as company service providers and the real estate sector. In the U.S., the use of real estate as a vehicle for money laundering is well known. Nearly half of the most expensive residential properties in the United States are now purchased anonymously through shell companies.

In order to prevent dirty money from entering the U.S., gatekeepers, such as the real estate industry, need to conduct due diligence into buyers’ identities and the sources of their funds. While the U.S. has made some progress in collecting beneficial ownership information for high-end real estate in some markets, what is really needed is to put an affirmative obligation on the real estate sector to conduct customer due diligence.

Echoing repeated calls by civil society organizations such as Transparency International USA, FATF recommends stronger requirements for identifying beneficial owners, and extending legal anti-money laundering requirements to gatekeeper sectors.

The ball is now in the court of U.S. authorities. Will they take the measures needed to plug the gaps?


Shruti Shah is a contributing editor of the FCPA Blog. She's Vice President of Programs and Operations at Transparency International-USA. She can be contacted here.

Max Heywood is an advocacy coordinator at Transparency International secretariat in Berlin. Before joining TI he worked as a researcher for the Economics Institute of the Cordoba Exchange in Argentina. He can be contacted here.