For years, the Treasury Department has worked to bring transparency to our financial system. Yet, one critical gap remains — banks and brokerages often do not know the identity of the people behind the businesses that open accounts. This makes it easier for financial criminals, terrorist financiers, and sanctions busters to move and launder their dirty money through anonymous shell companies, front companies, and other types of legal entities.
This week, the Treasury Department took an important step to close this loophole. We proposed a new regulation that would require, when an account is opened, for banks and other financial institutions to identify and verify the identity of the real people behind the businesses who are their customers. And while this may sound rather technical, it nonetheless is a critically important step forward in the fight against dirty money.
Surprising as it may be, many companies do not need to disclose their owners when opening a bank account. This is because our anti-money laundering regulations do not currently require financial institutions to obtain this information, though some still do so voluntarily. As a result, an anonymous shell company in one state owned by a similarly faceless company in another, and controlled by a shadowy foreign-based holding company, may be able to open a U.S. bank account without revealing the true identities of its individual owners. In short, the lack of an explicit legal requirement has allowed bad actors to transact through opaque legal entities with no personal traceability.