US mulls new rule for banks to identify owners of shell companies

  • PTI, Washington
  • Updated: Apr 07, 2016 11:48 IST
Obama said April 5 that the revelations that powerful international politicians and businessmen have hidden money in shell companies shows tax avoidance is a global issue. "Tax avoidance is a big global problem," he said, after documents leaked from a Panama law firm showed tens of thousands of anonymous companies could have been used to hide income. (AFP)

In the wake of the ‘Panama Papers’ leak, the US is mulling introduction of a new rule that would require banks to identify owners of shell companies as part of efforts to plug a major loophole in its banking system, according to a media report.

“The rule is meant to close a major loophole in the American banking system that enables the sorts of secretive financial manoeuvres that were thrust into the spotlight this week with the leak of millions of documents from a law firm in Panama,” The New York Times reported on Wednesday.

Under existing federal regulations, banks with American branches in the US are required to “know their customers” who open accounts in the country. “But those rules have been significantly weakened because banks have not been required to know the identities of customers who set up accounts in names of shell companies,” the daily said.

The proposed Customer Due Diligence rule is an attempt to close that loophole, a senior Treasury official said.

The new rule will require banks to find out the identities of any individual who owns 25 per cent or more of corporate entities that open bank accounts, as well as any individuals exercising control over those entities, the report said.

The White House, meanwhile, differed with Democratic presidential aspirant Bernie Sanders who had warned that it would be a stamp of approval for Panama as a tax shelter while opposing the US-Panama Free Trade Agreement.

“The US-Panama Free Trade Agreement did not apply to tax measures and one reason for that is that in 2011, under President (Barack) Obama’s leadership, the US and Panama did conclude a Tax Information Exchange Agreement,” White House Press Secretary Josh Earnest told reporters.

These are the kinds of agreements that the US maintains with other countries to promote tax transparency in creating a major disincentive for US citizens to use a country like

Panama, in this case, to circumvent tax laws, he said. “This is not dissimilar from the kinds of information-

sharing agreements that we have signed with about 112 other countries around the world as a result of the Foreign Account Tax Compliance Act. This is the FATCA legislation that President Obama signed into law in 2010,” he said.

“All of this has promoted greater transparency in the context of international financial transactions. That is important because it will allow the international community and the US to do things like fight corruption, to crack down on individuals who are trying to use shell corporations to avoid paying their fair share in taxes. It also is a way for us to detect individuals or entities that are trying to circumvent US financial sanctions,” Earnest added.

A massive leak of 11.5 million tax documents has reportedly exposed the secret offshore dealings of around 140 political figures globally. The vast stash of records, covering around 40 years, was obtained from an anonymous source by German daily Sueddeutsche Zeitung and shared with media worldwide by the International Consortium of Investigative Journalists

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