Warning to remain cautious with US firms for compliance

JERSEY finance businesses should remain cautious when dealing with US-based companies for compliance purposes despite Congress recently passing a corporate transparency act, an American expert has warned.

Work is progressing to increasingly make beneficial ownership of companies more open across Europe, with Jersey and the other Crown Dependencies having made commitments to introduce fully transparent company registers, which the public can access, by 2023 in line with international standards.

On 2 January, the US Congress voted to override recently ousted President Donald Trump’s veto of the National Defence Authorization Act, which brought changes to the US anti-money-laundering regime into law, including the Corporate Transparency Act.

Ross Delston, an anti-money-laundering expert and former US banking regulator, explained that the CTA mandated the creation of a government-maintained registry of beneficial owners for certain US companies and LLCs, in an effort to combat gaps in the country’s anti-money-laundering regime.

He warned, however, that the US company register would not match the standards of its European equivalents in terms of transparency.

‘The EU has gone forward with what appears to be public registries, meaning that corporations, companies or any sort of legal entity must file some sort of information with the registry, which is then accessible by the public,’ he said.

‘This is not the approach the US has taken. The US approach is that this will be a registry that is only available to certain categories of government agencies and financial institutions and only for limited purposes, and not open to the public.’

He added: ‘A second point is that federal law enforcement in the US has pretty much unfettered access but non-federal law enforcement needs to get a court order, so they have more limited access to this database.

‘Then we come to financial institutions. Again, the registry is not open to all financial institutions But rather only to a limited group that is called “covered financial institutions”.

‘There are two further limitations on that limited class of covered financial institution. The first is they must be accessing the registry in connection with customer due diligence – not for investigation of a transaction. And the second is they must get the consent of the customer before they can access the database, and only then they can file a request with the Financial Crimes Enforcement Network or FinCEN, the American Financial Intelligence Unit.’

Mr Delston said that due to these restrictions, places like Jersey should not view the US as moving to an equivalent level of corporate transparency.

‘You should not assume that there is greater transparency in the US as far as the public is concerned, because there are such narrow roads to access to this registry,’ he said.

‘Knowing that, are you in any way safer in dealing with shell companies that are formed or organised in the US? I would say no, that they’re not in any way safer or more secure simply based on this new registry.’

He added that ‘shell companies’ were perceived as one of the greatest enablers of money laundering. Mr Delston recently held a seminar with Jersey-based professionals to discuss the issue.

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