Global Financial Integrity

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New Treasury Rule on Beneficial Ownership Fails to Ensure that Beneficial Owners Are Identified

Heather Lowe, +1 202 293 0740 ext. 228
Liz Confalone, +1 202 293 0740 ext. 270


GFI Calls on Congress to Take Action to Ensure that Beneficial Owners are Actually Identified at the Time of Company Formation

The U.S. Departments of Treasury and Justice announced a raft of measures and proposals to address critical vulnerabilities in the U.S. financial system on May 5th, following actions taken by other countries in response to the Panama Papers disclosures. GFI welcomes the introduction of these measures after a four year process but urges Congress to fix serious gaps in the requirements for identifying the beneficial owners of companies.

The centerpiece of the announcement was the finalization of Treasury’s customer due diligence (CDD) rule for financial institutions. The final rule requires banks to identify one individual who has significant responsibility to control or manage the company, defined to be a manager, as well as individuals—if any—who have a 25 percent or greater ownership interest in a company. Where no individual with a 25 percent interest is identified, the only person named will be the manager.

“Treasury has muddled the concept of control in their definition of ‘beneficial owner’. Managers—as persons who conduct the day-to-day operations of a company—are not beneficial owners. There is a difference between the control that someone exerts over a company despite not having an ownership interest, such as rights to veto board decisions and to appoint directors and the day-to-day management control of the company,” said Liz Confalone, Policy Counsel. “When we talk about control in the beneficial owner context, we’re talking about the former. That is the distinction missing in Treasury’s definition. This means that banks can fulfill their due diligence requirement without identifying any actual beneficial owner. This is a problem for everyone, but Congress has the power to adopt new legislation to fix it and should not hesitate to do so.”

Also announced on May 5th was the Administration’s intention to propose legislation that would require beneficial ownership information to be reported to FinCEN, essentially creating a registry of beneficial ownership information. The Administration has not published details regarding its legislative proposal, so it is not possible to determine at this time if that proposal will include the flawed definition of beneficial ownership drafted by Treasury. “We now know how Treasury has chosen to define ‘beneficial owners’ in its CDD rule, and it is not sufficient. A statute creating a central registry of beneficial ownership information has to get the concept right. The definition of ‘beneficial owner’ is the whole game; the success of the initiative lives and dies on the quality of that definition,” said Heather Lowe, Legal Counsel and Director of Government Affairs.

Meanwhile, today the International Consortium for Investigative Journalists (ICIJ) released data from its historic cache of 11.5 million leaked documents from Panamanian law firm Mossack Fonseca. Though personally identifying information, like taxpayer IDs and SSNs, have been withheld, the new Offshore Leaks Database allows the public for the first time to easily search for and find information on companies by country and by registration jurisdiction. The database reveals that Mossack Fonseca registered at least 1,260 companies for its clients in Nevada, but given that the leak is only a small portion of their client files, the number could actually be much higher.

“Under Treasury’s measures, the U.S. could continue to be an attractive place for people to do business and transact secretly. We can’t rely on leaks to get vital information regarding the ownership and control of corporate vehicles. There’s too much at stake. The Panama Papers proved that,” said Lowe.

For all press inquiries or to schedule an interview with Ms. Lowe or Ms. Confalone, contact Christine Clough at / +1 202 293 0740, ext. 231. On-camera spokespersons are available in Washington, DC.


Notes to Editors:

  • Click here to read the Department of Treasury’s press release on the proposed regulations and legislation.
  • Click here to read Treasury Secretary Jack Lew’s Letter to House Speaker Paul Ryan on the new proposals.
  • Click here to read the Department of Justice’s press release on the new proposed legislation.
  • Click here to read the White House’s G8 Action Plan for Transparency of Company Ownership and Control.
  • Click here to read the White House’s Action Plan to Implement the G20 High Level Principles on Beneficial Ownership.
  • Click here to read the White House’s National Action Plan under the Open Government Partnership endorsing the need to require the disclosure of meaningful beneficial ownership information.