It may soon get harder to hide your identity if you own a shell company.
The Obama administration on Thursday introduced a rule that will require the financial industry to identify companies’ real owners, as well as companies to report their owners’ identities to the government.
That legislation, called the Customer Due Diligence (CDD) rule, has been in the works since 2012. It’s meant to make it more difficult for criminals to use shell companies for illegal transactions, including funding terrorist activity. When the CDD rule was first proposed, in 2012, the financial industry argued against it, saying that it would be too costly and difficult to implement.
Corporate tax evasion has been in the spotlight recently in the wake of the release of the so-called Panama Papers, a massive data leak from law firm Mossack Fonseca. Since April, the Treasury Department has been building on previous rules and regulations to close gaps and make it even harder for anyone, from wealthy soccer players to government officials, to avoid paying taxes.
The Treasury Department’s newest regulations target corporate inversions, or companies that seek to merge and move their headquarters abroad for a lower tax rate. They also go after shell companies, making it harder for paths of ownership to be hidden and closing loopholes that allow shell companies to open and use bank accounts without having to reveal their owners’ identities.
Under the final CDD rule, announced by US officials on Thursday, financial institutions will be required to collect and verify the identities of companies’ owners when they open an account. The requirement applies to people who own more than 25 percent of a company. Institutions must also identify at least one person who controls the company, even if that person owns less than 25 percent. Banks will be given two years to bring their systems into compliance. The Justice Department is also proposing amendments that would give it greater power to pursue corruption cases abroad.
"Fundamentally our financial system should not provide the rich, the powerful, and the corrupt with the opportunity to shield their assets," Wally Adeyemo, the US deputy national security advisor for international economics, said in a call with reporters on Thursday. "Nobody should be able to hide in the shadows from their legal obligations."
Material from Reuters was used in this report.