United States: Panama Papers Fallout: A Push For Transparency And Regulatory Reform

Andres Fernandez is a Partner and Gabriel Caballero is a Senior Counsel in Holland & Knight's Miami office

HIGHLIGHTS:

  • After the release of the "Panama Papers," the White House has announced efforts to seek regulatory reform aimed at financial transparency and fighting money laundering, corruption and tax evasion.
  • Once implemented, these administrative actions and legislative proposals will significantly impact U.S. and non-U.S. companies, including financial institutions, many of which are currently dealing with complex issues involving financial reporting, global tax transparency, money laundering and public corruption.
  • In addition, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) has announced significant designations involving a number of Panama-based individuals and companies, including financial institutions, that have been linked to the Panama Papers.

In the wake of the "Panama Papers" – the unprecedented leak of 11.5 million files from a Panamanian law firm that revealed thousands of names and addresses linked to offshore companies – the White House has announced several efforts to seek regulatory reform aimed at financial transparency and fighting money laundering, corruption and tax evasion. Additionally, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) has announced significant designations involving several Panama-based individuals and companies, including financial institutions, that have been linked to the Panama Papers.

Steps to Combat Money Laundering, Corruption and Tax Evasion

The White House announced several important steps to combat money laundering, corruption and tax evasion, and called upon Congress to take additional action to address these critical issues. Specifically, the White House announced the following:

  • New administrative actions to increase transparency and disclosure requirements that will enhance law enforcement's ability to detect, deter and disrupt money laundering, terrorist finance and tax evasion, including:

    • Final Treasury regulations on "Customer Due Diligence" (CDD) that enhance transparency by requiring financial institutions to know and keep records on who actually owns the companies that use their services. On May 11, 2016, the Treasury Department's Financial Crimes Enforcement Network (FinCEN) published a final rule requiring financial institutions to know and verify the identities of the natural persons (also known as beneficial owners) who own, control and profit from companies when those companies open accounts. This rule is discussed in later detail below.
    • New proposed tax rules jointly issued by Treasury and the Internal Revenue Service (IRS) closing a loophole allowing foreigners to hide assets or financial activity behind anonymous entities established in the United States. Among other things, the proposed rules will require foreign-owned entities that are "disregarded entities" for tax purposes, including foreign-owned single-member limited liability companies (LLCs), to obtain an employer identification number (EIN) with the IRS.
  • On May 5, 2016, Treasury sent Congress draft legislation requiring legal entities to know and report information on beneficial ownership. If implemented, this legislation would require companies formed within the United States to file beneficial ownership information with Treasury, and companies would face penalties for failing to comply. The proposed legislation also contains technical amendments to the current Geographic Targeting Order (GTO) authority that would clarify FinCEN's ability to collect information under GTOs, such as bank wire transfer information. The most recent GTOs temporarily require certain U.S. title insurance companies to record and report the beneficial ownership information of legal entities making "all-cash" purchases of high-value residential real estate.
  • On May 5, 2016, the Department of Justice (DOJ) sent Congress draft legislation seeking to advance transnational anti-corruption efforts. If implemented, this legislative proposal would:

    • expand foreign money laundering predicates to include any violation of foreign law that would be a money laundering predicate if committed in the United States
    • allow administrative subpoenas for money laundering investigations
    • enhance law enforcement's authority to access foreign bank or business records by serving branches located in the United States regardless of bank secrecy or data privacy laws in those jurisdictions
    • create a mechanism to use and protect classified information in civil asset recovery cases
    • make the time period in which the United States can restrain property based on a request from a foreign country, currently 30 days, parallel to the domestic restraint period, which is 90 days; and extend the procedures to authenticate foreign records of regularly conducted activity in criminal cases to civil asset recovery cases
  • The issuance of a letter from Treasury Secretary Jacob Lew to Congress calling upon it to approve initiatives that have been pending for several years and that would help crack down on offshore tax evasion. Among other things, Secretary Lew's letter calls for:

    • the approval of several tax treaties – some of which have been waiting for U.S. Senate approval for several years – with other countries that would enable U.S. law enforcement to obtain information about financial accounts in those countries
    • adopting legislative proposals that provide full "reciprocity" under the Foreign Account Tax Compliance Act (FATCA)

Once implemented, these administrative actions and legislative proposals have and will significantly impact U.S. and non-U.S. companies, including financial institutions, many of which are currently dealing with complex issues involving financial reporting, global tax transparency, money laundering and public corruption. Consequently, both U.S. and non-U.S. companies will need to revisit their existing financial reporting and tax compliance obligations, as well as their policies and procedures to address any new applicable requirements resulting from these announcements.

Long-Awaited Rule on CDD Requirements for Financial Institutions

FinCEN's final rules on Customer Due Diligence (CDD Rule) require financial institutions to know and verify the identities of the natural persons (also known as beneficial owners) who own, control, and profit from companies when those companies open accounts.

The CDD Rule also amends existing regulations under the Bank Secrecy Act (BSA) and adds a new requirement for financial institutions – including banks, brokers or dealers in securities, mutual funds, futures commission merchants and introducing brokers in commodities – to collect and verify the personal information of beneficial owners.

Specifically, the CDD Rule contains three core requirements: 1) identifying and verifying the identity of the beneficial owners of companies opening accounts; 2) understanding the nature and purpose of customer relationships to develop customer risk profiles; and 3) conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.

With respect to the new requirement to obtain beneficial ownership information, financial institutions will have to identify and verify the identity of any individual who owns 25 percent or more of a legal entity, as well as an individual who controls the legal entity. Based upon comments received in response to the proposed rule that was published in August 2014, the final rule extends the proposed implementation period from one year to two years, expands the list of exemptions, and makes use of a standardized beneficial ownership form that is optional as long as a financial institution collects the required information.

In light of the foregoing, U.S. financial institutions will need to review, revise and enhance their existing BSA and anti-money laundering (AML) policies and procedures, as well as the existing capabilities of their systems and monitoring controls, to address the requirements imposed by the CDD Rule.

OFAC Sanctions Money Laundering Organization, Multiple Foreign Companies and Financial Institutions

The Treasury Department's OFAC on May 5, 2016, designated the Waked Money Laundering Organization (Waked MLO) and its leaders, Nidal Ahmed Waked Hatum (Waked Hatum) and Abdul Mohamed Waked Fares (Waked Fares), as Specially Designated Narcotics Traffickers pursuant to the Foreign Narcotics Kingpin Designation Act (Kingpin Act). OFAC also has targeted six Waked MLO associates and 68 companies tied to the drug money laundering network, including Grupo Wisa S.A., Vida Panama (Zona Libre) S.A. and Balboa Bank & Trust.

OFAC has alleged that Waked Hatum and Waked Fares co-lead the Waked MLO, which uses trade-based money laundering schemes – such as false commercial invoicing, bulk cash smuggling and other money laundering methods – to launder drug proceeds on behalf of multiple international drug traffickers and their organizations.

In addition to the Waked MLO and its two leaders, OFAC designated six Panama-based MLO associates for providing material support and/or acting on behalf of the MLO: Gazy Waked Hatum, Ali Waked Hatum and Jalal Waked Hatum, brothers of Waked Hatum who manage Waked Hatum's import/export, retail, and real estate businesses; Mohamed Abdo Waked Darwich, Waked Fares' son, who manages Waked Fares' duty-free retail and real estate development operations; and two attorneys, Norman Douglas Castro Montoto and Lucia Touzard Romo, who provide a variety of services, including incorporating shell companies, to the Waked MLO and serve various roles in several Waked-related companies.

These designations also target the principal Panama-based companies allegedly used by the Waked MLO to launder drug and other illicit proceeds: Vida Panama (Zona Libre) S.A., an import/export company in Panama's Colon Free Trade Zone; Grupo Wisa S.A., a holding company for businesses involved in real estate, construction, retail, hospitality, and media, including the La Riviera chain of duty-free stores operating throughout Latin America; Soho Panama S.A. and related entities, including a luxury mall and real estate development in downtown Panama City; Balboa Bank & Trust, a Panamanian bank; and the Strategic Investors Group Inc., a holding company that owns and controls Balboa Bank & Trust as well as two other financial services companies.

OFAC alleges that Balboa Bank & Trust was used to launder narcotics and other illicit proceeds for multiple international criminal organizations. This marks the second time that a foreign bank has been designated by OFAC pursuant to the Kingpin Act in the last year. The first time occurred in October 2015, when OFAC designated Banco Continental S.A., a bank headquartered in San Pedro Sula, Honduras.

On the same day OFAC announced these designations, several Panamanian governmental agencies responded by seizing, intervening and taking similar responsive measures against several of the designated entities. Specifically, the Panamanian Banking and Securities regulators assumed control of Balboa Bank & Trust and Balboa Securities Corp. Honduran authorities took similar action against Banco Continental S.A. last fall following its designation, and that bank now finds itself in liquidation proceedings.

Concurrent with the aforementioned designations, OFAC issued three general licenses that authorize certain transactions and activities for limited periods of time with five entities owned or controlled by the Waked network. The first two general licenses aim to assist with winding down transactions for a limited period of time by authorizing specific activities that would otherwise be prohibited. The third general license is intended to allow both Panamanian newspapers to continue printing and operating by authorizing specific activities that would otherwise be prohibited.

On May 13, 2016, OFAC updated one Kingpin Act general license and published two new Kingpin Act General Licenses relating to Soho Mall Panama, Balboa Bank & Trust and Balboa Securities Corp.

The aforementioned designations have impacted several U.S. and non-U.S. companies (including financial institutions), many of which are currently dealing with complex issues involving existing business relationships, blocked property and outstanding receivables or loans granted to the designated parties. Domestic and foreign financial institutions have especially been impacted due to unintended consequences related to international transactions and geographical risk.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions