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Banking Through Shell Companies Just Got Harder

By Sanford Millar of MillarLaw A Professional Corporation On Monday, September 5, 2016

For many U.S. and non-U.S. persons access to the U.S. banking system is key to preservation of the wealth or operation of their business. Anyone looking for banking security and liquidity will maintain an account in a U.S. bank, including, terrorists, drug dealers, arms traffickers, and money launderers.  An agency of the U.S Treasury,the Financial Crimes Enforcement Network, “FinCEN”  is seeking to severely limit access to the U.S. banking system for such persons.

“FinCEN exercises regulatory functions primarily under the Currency and Financial Transactions Reporting Act of 1970, as amended by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (”USA PATRIOT Act”) (Pub. L. 107-56) and other legislation. This legislative framework is commonly referred to as the ”Bank Secrecy Act” (”BSA”). The Secretary of the Treasury (”Secretary”) has delegated to the Director of FinCEN the authority to implement, administer, and enforce compliance with the BSA and associated regulations. ”

FinCen has recently published a proposed rule aimed at nont federally insured financial institutions.  The proposed rule would require the following institutions to adopt Anti-money laundering programs, and disclosure of Beneficial Ownership disclosure procedures.  The institutions are:  1) state chartered non-depository trust companies; 2) Non-federally insured credit unions; and 3) Private banks .

The use of these institutions has been popular to maintain confidentiality of the account name holder. What this means is that persons who have to this point relied on secrecy to maintain banking relationship will be exposed.  For some U.S. taxpayers the exposure could prove problematic.  Take for example the taxpayer who used a “shell company” to send dummy invoices to enable the taxpayer to make tax deductible expense payments essentially to himself, and then transfer the funds to a U.S. financial instution in the name of that shell.  Under the proposed rule, the U.S. taxpayer will be identified by the bank and the information made available to FinCEN.  This tax evader is one step closer to getting caught. Such will be the plight of Politically exposed persons as well.

In another front, taxpayers with cash based business have in some cases used these alternative banks to operate their businesses.  These people probably should come forward through a Voluntary Dsiclosure program and come clean prior to getting caught.  At a mnimum they should retain skilled counsel for the future looks dim if they stay underground.

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