Caribbean banks address fears of severed ties with U.S. banks due to fines and higher costs in a new set U.S. compliance regulations issued by the U.S. Department of the Treasury Financial Crimes Enforcement Network.
With the release of the Panama Papers, many investors, banks, financial institutions, and foreign countries are concerned that the traditional shell company may be that ‘gold that is gone forever.’
Caribbean leaders, including the prime ministers of Trinidad & Tobago and the president of Guyana, met earlier this month in Washington, D.C., with U.S. Vice President Joe Biden. Ahead of the meeting, concerns were expressed that some U.S. banks were severing ties with banks in the Caribbean due to fears about fines and higher costs because of increased U.S. oversight of money laundering in the area.
Latin America Financial Services Advisor asks:
What effects are U.S. compliance regulations having on Caribbean banks? How has the de-risking trend affected non-banking financial institutions in the Caribbean basin? Are the U.S. regulations appropriate, or are they causing an undue burden on companies and their customers? How will new transparency rules, announced May 5 by the Obama administration requiring financial institutions to know the true owners of accounts, affect U.S. and Caribbean banking relationships?
Louis V. Martinez and Roland M. Potts, attorneys at Diaz, Reus & Targ LLP answer:
“As Robert Frost once wrote, ‘nothing gold can stay.’ With the release of the Panama Papers, a lot of investors, banks, financial institutions, and foreign countries are concerned that the traditional shell company may be that gold that is gone forever. The Panama Papers revealed what many already knew: that shell companies are used frequently for both legal and illegal purposes. Recently, the U.S. government set forth new ‘customer due diligence’ rules, effective July 11, requiring financial institutions to verify who actually owns and profits from a shell company when it opens an account with a financial institution. But does this new regulation truly eviscerate the use of shell companies? Maybe not. The term ‘beneficial owner’ has traditionally been defined in the international finance sector as the actual human being who gains from the company’s equity. However, President Obama’s new customer due diligence rules redefine the meaning of a beneficial owner. Under the new rule, anyone who owns less than 25 percent of a company does not need to be reported as the beneficial owner, and, perhaps more interestingly, the appointed president of a shell company is allowed to be listed as the beneficial owner. The fallout from the Panama Papers will continue. It is now more important than ever for legitimate businesses to proactively seek to avoid the traps meant to catch illegal activity. It is crucial in these times to have a trusted team of advisors, including legal counsel, to give certainty and security to your tomorrow. Maybe nothing gold can stay, but it is not yet gone.»
Read more responses and the full May 5-18, 2016 edition of Financial Services Advisor, a publication of Inter-American Dialogues, here.
