In a news conference May 6, President Obama addressed recently announced rules and proposed regulations intended to help the U.S. fight tax evasion and other crimes connected to anonymous offshore companies and accounts. The announcements come after a month of intense review by the administration following the first release of the so-called Panama Papers, millions of documents stolen or leaked from Panamanian law firm Mossack, Fonseca. The papers have revealed a who’s who of international politicians, business leaders, sports figures and celebrities involved with financial transactions accomplished through anonymous shell corporations.
The new regulations include a “customer due diligence” rule requiring banks, mutual funds, securities brokers and other financial institutions to determine, verify and keep records about the actual ownership of the companies with whom they do business. The administration has also proposed regulations requiring owners of foreign-owned “single-member limited liability companies” to obtain employer identification numbers from the IRS. In an effort to increase transparency and address “the problem of global tax avoidance,” both rules are intended to make more easily discoverable the actual ownership of offshore companies and accounts, allowing for easier investigation of suspected fraud, tax evasion, and money laundering. Currently, companies can do business in the U.S. anonymously by registering in states that do not require full disclosure of actual ownership.
The new rules create regulatory obligations for a broad array of financial institutions, and potential new obligations for off-shore investors. A further release of Panama Papers on May 9 contained the identities of many U.S. companies and individuals involved in such “anonymous” shell corporations. Greater scrutiny of such transactions and the financial institutions involved with them is likely to follow.