As published on advisorhub.com, Thursday 10 February, 2022.
A proposal by the U.S. Treasury Department to require certain corporations to disclose identities of their beneficial shareholders is attracting opposition from family offices.
Ultra-wealthy families or individuals are “uniquely susceptible” to crimes like theft, fraud, extortion and kidnapping, according to the Private Investor Coalition, a group that advocates for single-family offices in Washington.
Disclosing personal identifiers such as names and residential addresses, as the new rule would require, could endanger these families for whom privacy considerations “are of paramount importance,” the group said in a Feb. 1 letter to the Federal Register submitted during the comment period.
Even though the shareholder information will be held in a government database, not viewable to the public, the Private Investor Coalition argues the risk remains.
“When sensitive data is stored in one place, the event of a data breach is more a matter of ‘when’ than ‘if’ it will occur,” the group said in the letter.
The proposal by the Treasury’s financial intelligence unit would implement part of last year’s Corporate Transparency Act and is aimed at combating money laundering, fraud and other crimes which are often facilitated by opaque shell companies.
Under the rule, the beneficial owners of foreign and domestic corporations, LLCs and other entities would be required to disclose to authorities their name, date of birth, address and share a scanned copy of an identification document, like a driver’s license. Certain categories of companies that already have to share this information are exempt.
Many countries already mandate companies disclose beneficial owners and some, like the U.K., make the information public. Evidence suggests the rule poses no increased risk for kidnapping or extortion, said Ryan Gurule, policy director at the FACT Coalition, a Washington advocacy group.
“We work closely with law enforcement and they’re strong advocates for this law as an incredibly important tool to weed out tax evasion, corruption and other activities,” Gurule said.
Lawmakers and regulators have honed in on family offices in the wake of last year’s implosion of Archegos Capital Management, the family office of former hedge fund manager Bill Hwang. Family offices aren’t required to register as investment advisers or disclose holdings since they manage money for only family members and not outside clients.
The proposed Treasury rule and other discussed regulatory measures have rankled family offices, whose beneficiaries and administrators see enhanced measures as invasive and unnecessary, according to Bill Woodson, head of strategic wealth advisory at Boston Private, an SVB Financial Group company.
For example, much of the information the new rule seeks must already be disclosed by family offices through various financial intermediaries’ compliance requirements, he said.
“The consistent thematic response from the family office industry is largely, ‘You don’t understand us,’” Woodson said.