Has the United States turned a corner in the fight against money laundering? A continual bugbear of mine through the years has been the country's refusal to accept that until it is prepared to apply the same rules that it expects others to follow, it is the pot calling the kettle black.
Now, at long last, it would appear that the end is in sight for this gross hypocrisy since the Federal government - which always had the power to do so - has acted and approved the National Defense Authorization Act, requiring the disclosure of beneficial ownership of companies more often than not associated with those registered in jurisdictions offshore. The law also opens the door for a new whistleblower programme aimed at people who want to report potential anti-money laundering violations.
Former President Trump had previously vetoed the bill for reasons unrelated to corporate ownership (including such extraneous subjects is not uncommon when bills are prepared) and more about defence operations and national-security programmes contained in the bill. At the time, before Trump's departure from office, it was more a case of politics once again raising its ugly head. Nonetheless, this reversal had the desired effect.
Clark Gascoigne, a senior policy adviser for the Financial Accountability and Corporate Transparency Coalition, a Washington-based group in favour of ownership disclosure, is delighted with this outcome. He has said that "Anonymous shell companies where the true beneficial owners are unknown is the biggest weakness in our anti-money-laundering safeguard". Clearly, Mr. Gascoigne, has, like so many before him, stated the blindingly obvious. He is right to say that "It's the single most important step we could have taken to better protect our financial system from abuse".
In theory, then, beneficial ownership disclosure will be the same in Panama City, Florida, as it is in the city of Panama in the Republic of Panama where such controls are already in place. I say in theory, because the US Treasury Department must first issue accompanying, and essential, regulations (my view is that without them, a lot of legislation is much like a car engine idling: you can't move forward until the gears are engaged). The Treasury Department has been given a year to produce them; will this be achieved or will the deadline be extended? In any event, in the case of existing companies they will be given two years to comply; I hasten to add that my own interpretation of the present situation is that both the regulations and the two-year rule are wrapped in the unspoken words "probably" and "expected".
Disclosure rules require the owner (or owners) to provide their names, birth date, address and government-issued identification number (driving licence or passport would suffice). The very same information, in other words, that is already available to the Panamanian authorities, but not the public, for companies formed in Panama. Similarly, in America only the Federal government's law enforcement would have access to the data.
There would be exemptions. Publicly-listed companies and many firms regulated by the Federal government would not need to report and nor would companies with more than 20 full-time employees, US$5 million in annual sales and a physical place of business.
I, for one, welcome this development but certainly believe that not only is this road to hell paved with good intentions, but hurdles as well, in a country riven by toxic politics glaringly exposed recently in Washington. Insofar as politics goes, I am reminded of Graham Greene's view: "Sooner or later... one has to take sides. If one is to remain human". It is a quote from his prescient book, "The Quiet American". Sides were taken during the last US presidential election and, I should add, quiet Americans were in short supply.
The Organisation for Economic Co-operation and Development (OECD) which celebrates its 60th anniversary this year is alive and well in its Paris headquarters. Its tumbrils continue rolling in its drive to decapitate all international tax advantages known to man. It therefore seeks a playing field that is not levelled, but dishevelled, and is preparing a public consultation on potential improvements to its ubiquitous Common Reporting Standard (CRS) which provides for the automatic international exchange of financial account information. The original version of CRS was published in February 2014, after which some automatic information exchanges began in 2017.
Financial institutions in those participating countries - this does not include the US - are required to collect account information relating to foreign tax residents or entities with such accounts and report the information to each account holder's domestic tax authority for scrutiny.
In 2019, information was, apparently, exchanged on 84 million financial accounts worldwide, involving assets worth billions. It is claimed that the programme reduced deposits held in 40 leading international financial centres by 34 per cent from their peak of US$1.6 trillion in 2008.
The OECD consultation, which will not take place until later in 2021, has been brought to the boil because of the rapid increase in innovative financial products, caused in part by the affects the pandemic has had on economies. In particular, virtual currencies and other crypto-assets present a challenge to the CRS regime and so the quest for a single and consistent view continues; it is an ambitious (very) goal. The OECD is seeking the input not only from national tax authorities but from a wide range of outside experts in order to come up with solid recommendations for changes and improvements that will improve the overall effectiveness of the CRS regime.
The very fact that some of these financial innovations are recent must surely beg the question: has there been sufficient time to justify calling anyone an expert in such areas? Herein lies the danger: financial services firms (particularly small and medium-sized ones) are frantically seeking alternatives to their (once) normal revenue sources, in some cases regardless of the risks to themselves or their clients. I would say this to anyone seeking expertise, advice and guidance this month: beware the guides of March, and for that matter, any other month. There will be casualties.
In London the Financial Conduct Authority (FCA) is charged with the regulation of financial companies, and it has warned of a potential "heightened" risk of collapse, due to the pandemic, that will affect several thousand of them. A survey taken of over 20,000 firms found that at the end of last October, some 4,000 of them had low financial tolerance, increasing the real risk of failure. And that was before last December when the pandemic worsened and new variants of the virus were found.
Optimistically, it is important to say that the FCA urged caution regarding its data, with the situation being in a state of flux following improved changes in government aid and the arrival of a vaccination programme. Prior to the survey, however, around 11,600 investors were already facing losses of at least £237 million after the mini-bond operation London Capital & Finance went into administration. And one other thing the survey did reveal was that many investment management firms were battling liquidity challenges, with over half of them (59 per cent) experiencing losses of net income. Subsequent events have hardly improved things.
Just as we must wait to see whether or not, firstly, the US achieves its ambition to fully expose corporate ownership of American corporations to the light of day and, secondly, whether the OECD is able to accomplish its goal with a revised CRS in place - one that does not look like a confounding maze of inconsistent rules with several, selective, interpretations - so we will have to also wait and see where this pandemic is taking us.
Derek R. Sambrook is a member of the Society of Trust and Estate Practitioners in the United Kingdom and obtained the Trustee Diploma of the Institute of Bankers in South Africa in 1973, becoming a Fellow of the institute in 1996. He emigrated in 1977 from Rhodesia (now Zimbabwe) where he was branch manager of a trust company and continued his profession in North America (Miami), Europe (including London and the Channel Islands), and the Caribbean (including the Cayman Islands). He has lived in Panama since 1996 where he is the Managing Director of Trust Services, S.A. (www.trustservices.net), a Panamanian trust company and former Treasurer of the British Chamber of Commerce Panama after several years of service. Mr Sambrook‘s regulatory experience began in the corporate division of the Rhodesian (now Zimbabwe) Ministry of Justice (1965-1970) and subsequently he was appointed by the British government (1989-1992) as the first Bank, Trust Company and Insurance Regulator in the Turks & Caicos Islands, British West Indies; he established a regulatory body and drafted trust and insurance laws, banking and other regulations including licensing guidelines. As a direct result of his innovative captive insurance law, the Turks & Caicos Islands today has more than 5,000 producer-owned reinsurance companies and is the leading domicile in the world for this service. During his tenure he was also a member of the Latin American and Caribbean Banking Commission and Chairman of the government’s Offshore Financial Services Committee. He was a columnist for a leading United Kingdom offshore financial journal for over 15 years. His newsletter, Offshore Pilot Quarterly, has been published since 1997.