Lawyers, real estate professionals not subject to adequate US money laundering rules, Treasury says

02 Apr 2020 12:40 pm by Robert Thomason

Real estate professionals and lawyers in the US are not subject to adequate anti-money laundering requirements, creating "significant vulnerabilities" that can be exploited, the Treasury Department said. Treasury said it would work with Congress, other agencies and foreign governments to plug these and other loopholes in anti-money laundering laws.

"Real estate brokers, agents, and settlement agents have limited Bank Secrecy Act (BSA) obligations, and the ability to purchase high-value assets that maintain relatively stable value using anonymous companies or straw purchasers is attractive to all manner of illicit actors, both domestic and foreign," Treasury said in its 2020 National Strategy for Combating Terrorist and other Illicit Financing released today.

"Treasury is committed to working with Congress to minimize the risks of the laundering of illicit proceeds through real estate purchases," it said.

— Interest on Lawyer Trust Accounts —

Lawyers have been found to use "Interest on Lawyer Trust Accounts" to facilitate money laundering, Treasury's strategy document said, adding that IOLTAs from large multinational law firms were used to launder almost $600 million of embezzled 1MDB funds into the US.

Treasury quoted an international money-laundering watchdog group about the vulnerability. "The lack of [Bank Secrecy Act] coverage of lawyers contrasts with the very significant gatekeeper role being played by them particularly in the high-end real estate transactions and the company formation processes in the US," said the Financial Action Task Force, an intergovernmental group founded to fight money laundering.

"Complicit attorneys may allow illicit proceeds to be deposited in their Interest on Lawyer Trust Accounts and then launder the funds through the purchase of real estate or investments, or by transferring the money out of the United States," Treasury said.

"US law enforcement authorities have increased their focus on attorneys suspected of being complicit in money laundering, particularly those suspected of laundering funds for drug traffickers," Treasury's illicit financing strategy document said.

— Beneficial Ownership —

Anonymous ownership of shell companies is frequently used in hiding illicit funds, Treasury said. Sometimes criminal schemes involved having one anonymous company own another, complicating or thwarting investigations.

Treasury said it implemented a Customer Due Diligence rule in 2018 requiring financial institutions to verify the identity of the people who are beneficial owners of the companies or other legal entities that open accounts. It said 23,000 financial institutions are subject to the rule.

"While the CDD rule addressed the gap of collecting beneficial ownership information at the time of account opening, there remains no categorical obligation at either the state or federal level that requires the disclosure of beneficial ownership information at the time of company formation," Treasury said.

"Treasury currently does not have the authority to require the disclosure of beneficial ownership information at the time of company formation without legislative action," it said. Treasury officials have supported the disclosure of beneficial owners of corporations and limited liability companies.

— 'All tools' approach —

Treasury said other "significant vulnerabilities in the United States exploited by illicit actors" include lack of comprehensive anti-money laundering regulations for some financial institutions, such as state-chartered banks that lack a federal regulator; digital asset brokerages that misuse the US financial system; and large volumes of foreign funds flowing through US correspondent banks.

"The U.S. government must continue to use an 'all tools' approach through which key law enforcement and interagency partners collaborate and share information," Treasury said. "We must also review our core [anti-money laundering/combating terrorist financing] legal authorities and tools to ensure they are fully capable of addressing emerging trends and threats.

"This could include exploring options for strengthening our financial sanctions authorities; increasing the list of illicit activities that financial institutions can share information about under Section 314(b) of the USA PATRIOT Act; and expanding, streamlining, or consolidating the current patchwork of crimes that are considered predicate offences for money laundering and ensuring that a sufficient range of foreign predicates are covered by law," the strategy document said.

Treasury also said that the US should continue to play a leading role in the Financial Action Task Force, noting that the US had held the presidency of the group last year.

— FCPA as anti-money laundering tool —

Treasury said it will use US anti-bribery laws to combat money laundering.

"To combat corruption-related financial activity, U.S. authorities will continue to enforce the Foreign Corrupt Practices Act and target the proceeds of foreign corruption and the facilitators who launder these assets through the United States, through DOJ's specialized programs addressing these related threats," Treasury said.

"This includes the FCPA Unit and the Kleptocracy Asset Recovery Initiative, both housed within DOJ's Criminal Division, in the Fraud Section and Money Laundering and Asset Recovery sections, respectively" Treasury said. "These programs, supported by law enforcement agency partners, work ... to attack the root cause of corruption and its aftereffects on the U.S. financial system."

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