US set to require banks to ID owners of shell companies: report

(Illustration: Chris Manfre)
(Illustration: Chris Manfre)

From the New York site: The federal government’s war against shell companies frequently used in real estate acquisitions is extending to the banks. New regulations that will require financial institutions to identify the individuals behind such entities are reportedly close to being implemented.

While current federal regulations require banks in the U.S. to “know their customers,” financial institutions weren’t previously required to identify the individuals who set up accounts in the name of shell companies, according to the New York Times.

Shell companies have faced heightened scrutiny in recent years, especially related to their role in real estate transactions that critics claim can be used to disguise money-laundering activities.

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The proposed customer due diligence rule, or CDD, seeks to limit such activities, Treasury Department officials told the Times. It will require banks to identify individuals who own 25 percent or more of corporate entities that open bank accounts, and any individuals who control those entities.

New York City’s Department of Finance proposed similar regulations last year in relation to LLCs used to buy real estate in the city, and the Treasury Department announced earlier this year it would roll out a pilot program in Manhattan and Miami-Dade County requiring the hidden buyers of high-priced properties to disclose their identities.

News of the banking regulation arrives in the wake of this week’s unprecedented leak of millions of documents from Panamanian law firm Mossack Fonseca, one of the largest incorporators of shell companies in the world. The leak, known as the Panama Papers, detailed how the global elite make use of shadowy offshore shell companies and tax havens. They also showed that the shell companies do business with major international banks such as UBS, Credit Suisse and HSBC, which have major operations in the U.S.

The Real Deal recently identified several New York real estate players with ties to offshore entities, including Witkoff, Stonehenge Partners and the Nakash family. [NYT]Rey Mashayekhi