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US tightening money laundering laws

November 15, 2013 at 2:58 pm | News Desk

Efforts to fight money laundering and empty shell companies would be strengthened by two bills introduced in the US Congress on October 23, by giving federal regulators enhanced powers to hold bank executives personally responsible for misdeeds. The move in the US House of Representatives comes after banks had to pay at least $5bn in fines and settlements to resolve allegations of laundering money for drug cartels, Iranian clients and the Cuban government. However, no bank executives have been indicted in those cases. A courtroom sketch shows former Guatemalan President Alfonso Portillo as he appears in Manhattan Federal Court in New York

Tackling shadowy shell companies was also on the agenda of the G8 meeting of the world’s largest economies in June. British Prime Minister David Cameron in particular pushed for the true beneficial ownership of companies to be revealed through registries, which would crack down on companies trying to evade taxes. In the US, senators pointed to Apple’s tax practices as a reason why loopholes needed to be eliminated. In May, the Senate Permanent Subcommittee on Investigations issued a report on Apple, saying the company avoided paying taxes on $44bn in income by using by using a “complex web of offshore entities”.

Apple denied those claims, arguing that it is probably the largest corporate taxpayer in the US and that its international affiliates are not “shell companies”. The House bill on shell companies would require the true ownership of a firm be identified when it is incorporated. The White House said earlier this year that it would push for such legislation as part of its G8 pledge. In August, the Senate introduced a similar measure that requires companies to disclose their ultimate or real owners when the firm is established. It also mandates that those companies keep the ownership information up to date.

In addition to holding bank executives personally responsible, the House anti-money laundering bill backed by representatives Maxine Waters and Carolyn Maloney gives authorities more power to ban individuals from the industry if they violate anti-money laundering laws. It also raises the cap on the maximum prison term for individuals convicted of evading an anti-money laundering programme from five years to 20 years. The legislation requires the justice department to explain to Congress decisions that lead to monetary settlements instead of pursuing prison terms.imagesCAKLX2H7

The bill would also enhance the authority of the Treasury’s Financial Crimes Enforcement Network, giving it civil litigation authority instead of having to rely on the justice department to pursue legal prosecution. Corporate governance standards would also be strengthened by requiring senior bank management to certify receipt of compliance reports that identify deficiencies.

Regulators would have to issue rules prohibiting pay structures that jeopardize compliance, and banks must include clawback compensation provisions for legal violations. Last year, HSBC Holdings paid a record $1.9bn to US authorities to settle accusations that it failed to monitor billions in wire transfers and purchases of US currency involving the Sinaloa drug cartel in Mexico and the Norte del Valle cartel in Colombia.

HSBC was also accused of violating US sanctions against Iran, Cuba, Libya, Myanmar and Sudan. HSBC has apologized over the allegations and said it has significantly improved its standards.

Standard Chartered, ING Bank NV and other banks have also had to pay millions to settle allegations of money laundering or violating sanctions. “In the wake of the recent bank money laundering scandals, where even record-breaking fines were nothing more than the cost of doing business, I believe it’s time to go after the individuals responsible for these crimes,” said Ms Waters, who added that bank executives can no longer hide behind collective decision-making. FT

 

News Desk

Economic Affairs Editor

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