Whitehouse, Colleagues Urge Financial Action Task Force to Bolster Transparency in Latest Beneficial Ownership Proposal

Washington, DC – Senator Sheldon Whitehouse (D-RI), Chairman of the Senate Budget Committee and the Senate Caucus on International Narcotics Control, today released a bipartisan letter with 11 of his Senate colleagues to the Financial Action Task Force (FATF), the intergovernmental body that sets international anti-money laundering standards, calling on FATF to improve their latest beneficial ownership transparency proposal governing trusts and similar legal arrangements.

“The international order built on democracy, free markets, and the rule-of-law is under assault from autocracy, kleptocracy, and criminality.  This assault has been fueled by opaque legal structures—such as anonymous trusts and other similar legal arrangements—created by the rule-of-law world, which provide sanctuary for the stolen wealth of the world’s worst actors,” wrote the senators.

“There is a straightforward antidote to this opacity: transparency, and we encourage the Financial Action Task Force to strengthen the transparency aspects of this proposal,” continued the senators. 

“Specifically, we encourage you to strengthen the proposal—in line with last year’s revisions to Recommendation 24 on the beneficial ownership of legal persons—by mandating that all trusts and similar legal arrangements register their beneficial ownership information with a central, public authority,” added the senators.

Joining Whitehouse on the bipartisan letter are Senators Bill Cassidy (R-LA), Elizabeth Warren (D-MA), Ron Wyden (D-OR), Ben Cardin (D-MD), Chris Van Hollen (D-MD), Tammy Baldwin (D-WI), Bob Casey (D-PA), Jack Reed (D-RI), Jeanne Shaheen (D-NH), Bernie Sanders (I-VT), and Richard Blumenthal (D-CT).  The senators’ letter comes in advance of a meeting of FATF members in Paris next week to discuss revisions to the proposal.

FATF implemented a strong proposal last year on the transparency and beneficial ownership of legal persons after Whitehouse – who has led the charge to strengthen America’s hand against international corruption and kleptocracy – called on the organization to improve the anti-money laundering proposal.

Full text of the senators’ letter is below.  A PDF copy of the letter is available here.

February 15, 2023

Mr. T. Raja Kumar
President
Financial Action Task Force
2, rue André Pascal
75775 Paris Cedex 16 FRANCE

RE: Draft Amendments to Recommendation 25 and its Interpretive Note (R.25/INR.25)

Dear President Raja Kumar,

Thank you for the opportunity to provide our views on the Financial Action Task Force’s draft amendments to Recommendation 25 and its Interpretive Note on the transparency and beneficial ownership of legal arrangements.  We are concerned the current draft falls far short of safeguarding against the abuse of trusts and similar legal arrangements.  Specifically, we encourage you to strengthen the proposal—in line with last year’s revisions to Recommendation 24 on the beneficial ownership of legal persons—by mandating that all trusts and similar legal arrangements register their beneficial ownership information with a central, public authority. 

The international order built on democracy, free markets, and the rule-of-law is under assault from autocracy, kleptocracy, and criminality.  This assault has been fueled by opaque legal structures—such as anonymous trusts and other similar legal arrangements—created by the rule-of-law world, which provide sanctuary for the stolen wealth of the world’s worst actors.  We have turned a blind eye to this sad truth for decades; now war is on the doorstep of the European Union. 

Several journalistic exposés—from the Panama Papers to the Pandora Papers—demonstrate how easy it is for kleptocrats, drug cartels, human traffickers, tax evaders, and other bad actors to move and hide illicit funds in rule-of-law economies with the assistance of opaque structures, including anonymous trusts.^[1]  For example, the Pandora Papers uncovered more than 200 United States-based trusts that held assets of more than $1 billion “including nearly 30 trusts that held assets linked to people or companies accused of fraud, bribery, or human rights abuses”.^[2]

Russian oligarchs have made frequent use of trusts to hide their ill-gotten-gains and evade Western sanctions.  Last June, the U.S. Department of the Treasury blocked over $1 billion held in a Delaware trust linked to sanctioned Russian oligarch Suleiman Kerimov.^[3]  Another oligarch, Roman Abramovich, reportedly reorganized ten secretive offshore trusts worth at least $4 billion weeks before Vladimir Putin invaded Ukraine to blunt the impact of anticipated sanctions.^[4]  It’s unclear whether authorities would have ever known about Abramovich’s trusts, if they had not been reported in The Guardian.

There is a straightforward antidote to this opacity: transparency, and we encourage the Financial Action Task Force to strengthen the transparency aspects of this proposal.  The Task Force’s current proposal allows countries to choose between housing beneficial ownership information of trusts in one of three places: (1) central government registers; (2) other competent public authorities—such as tax authorities; or (3) professional service providers such as “investment advisers or managers, accountants, lawyers, or financial institutions.”  The first option is preferred, but the third must be eliminated.

Relying solely on professional service providers to provide authorities with adequate, accurate, and up-to-date beneficial ownership information risks tipping off the subjects of investigations, provides needless barriers to timely access, and creates compliance challenges.^[5]  The Task Force recognized that this was a flawed approach last year in your amendments to Recommendation 24 and its Interpretive Note on the transparency and beneficial ownership of legal persons.^[6]  While trusts have their own structural nuances, they can be used in a substantially similar manner to legal persons.  Introducing transparency to companies while failing to do the same for trusts is an open-invitation to the world’s kleptocrats and criminals to continue business-as-usual—after restructuring their holdings into legal arrangements.  It’s a loophole through which you could sail a superyacht.

As the war in Ukraine demonstrates, the work you are doing is instrumental to defending democracy, the rule-of-law, and free markets.  The updates to Recommendation 25 present a once-in-a-decade opportunity to shore up our financial defenses against kleptocracy and criminality.  We hope you meet the moment.

Meaghan McCabe, (202) 224-2921