At the Atlantic Council and Thomson Reuters “Power of Transparency” Speaker Series, Assistant Secretary Daniel Glaser spoke about the U.S. Treasury’s efforts to battle corruption and to ensure that the financial system is a hostile environment to corruption’s proceeds.
“It should go without saying that corruption harms the global community for a wide range of reasons: It stifles economic development, impairs democratic institutions, erodes public trust and impairs international cooperation,” Glaser said. “Moreover, corruption creates space for criminals to flourish and abuse the financial system – threatening local, regional, global and U.S. national security.”
Glaser added that fighting corruption will take more than criminalization and prosecutions.
“At Treasury, we have the unique ability to make it more difficult for corrupt individuals to use the money that they steal. The key to doing this is by focusing on strengthening financial transparency – particularly through effective implementation of measures regarding anti-money laundering and countering the financing of terrorism (AML/CFT),” Glaser said.
Glaser spoke about the domestic and international efforts to fight financial corruption.
“Financial transparency, at a basic level, means having timely, meaningful, and reliable information about the parties to transactions and assets,” Glaser said. “Financial transparency is essential to the success of corruption investigations and the investigations of many crimes, because it better enables us to trace, identify and ultimately return assets stolen by corrupt leaders and regimes. What’s more, financial transparency itself has a strong deterrent effect on criminals, keeping their money out of the financial system to begin with.”
Glaser said that one key measure supporting financial transparency is effective customer due diligence (CDD).
“Financial institutions are our front line of defense, and they need to be empowered to identify their customers, verify the information they have and monitor for suspicious activity,” Glaser said. “In order for these relationships to be truly transparent, financial institutions also need to know who is ultimately behind an account, that is, who is the ‘beneficial owner.’ To further improve our own system in this regard, we are developing a rule to clarify and strengthen financial institutions’ CDD obligations. Our proposed rule clarifies CDD expectations and includes a requirement to identify and verify beneficial owners of certain legal entity customers.”
The Treasury sent a final draft of this rule to the Office of Management and Budget earlier this month.
Glaser noted that financial transparency goes beyond the role of financial institutions, which is why the Treasury is focusing on improving the financial transparency of companies, such as requiring the identification of the beneficial owners of U.S. legal entities and providing law enforcement with ready access to such information.
“We are committed to working with Congress to pass meaningful beneficial ownership legislation. To be effective, this legislation must require that all companies know and disclose adequate and accurate beneficial ownership information at the time of creation, regularly update this information, as well as face penalties for failure to comply with these provisions,” Glaser added.
Referencing the recent leak known as the Panama Papers – where an unprecedented 11.5 million files from the world’s fourth largest offshore law firm, Mossack Fonseca, were leaked, exposing the use of secretive offshore tax havens – Glaser added that addressing financial transparency is a global concern.
“Only through effective implementation of the international AML/CFT standards around the globe can we address the corruption challenges that we all face,” Glaser said. “The key here – one that I cannot stress enough – is implementation. Countries must do more to effectively implement their laws. When we pass a law in the United States, we implement it. We have a longstanding record demonstrating the effective implementation of our laws. Now we need to see our partner countries around the world take this approach and implement strong laws.”
Glaser stated that the Treasury is working through the Financial Action Task Force (FATF), the global standard-setting body for AML/CFT, as well as collaborating with the G-20 and the G-7 to advance financial transparency.
“Recently, the G-20 anti-corruption working group developed the G-20 High Level Principles on Beneficial Ownership and has pressed members to publish action plans. Ours was published last October and is available on the White House website,” Glaser said. “And we maintain close and ongoing bilateral efforts with countries around the world, focused on supporting key partners as they make improvements to their AML/CFT frameworks and advance financial transparency even further.”
Glaser concluded that the Treasury Department will take steps to clarify and strengthen the diligence performed by financial institutions and inject transparency into the root of company formation.