The United States House of Representatives approved a resolution (H.Res. 206) highlighting several known weaknesses in the global financial sector that may be exploited by criminals and terrorist groups.

In particular, the resolution referenced (i) the lack of transparency in the arts and antiquities industry and the recent surge in U.S. markets of Middle Eastern artifacts believed to have been plundered by terrorist organizations such as the Islamic State of Iraq and the Levant (ISIL); (ii) the high number of luxury residential real estate purchasers in U.S. markets whose identities were uncovered as the result of recent FinCEN geographic targeting orders ("GTOs"); and (iii) Russian oligarchs as among the groups believed to have been utilizing these areas for the purpose of injecting the proceeds of criminal activity into global financial institutions through shell companies.

By the resolution's operative language, the House of Representatives:

  • acknowledges that "the lack of sunlight and transparency in financial transactions" presents a threat to national security and the U.S. economy's security;
  • supports efforts to shut loopholes that permit corruption, terrorism and money laundering;
  • fosters transparency to "detect, deter, and interdict individuals, entities, and networks" engaged in money laundering and other related crimes;
  • calls on financial institutions to adhere to the Bank Secrecy Act and other anti-money laundering laws; and
  • affirms that financial institutions and individuals must be held to account for committing money laundering.

Commentary / Joseph V. Moreno

The House resolution may serve as a preview for potential new legislative steps to come. The House Financial Services Committee, now under the Democratic leadership of Rep. Maxine Waters, has shown an interest in aggressively pursuing reforms and plugging loopholes long believed to have been exploited for money laundering and terrorist financing purposes.

Various clauses suggest additional steps may be taken, for example, to include art dealers in the definition of "financial institutions" under the Bank Secrecy Act. Financial Crimes Enforcement Network ("FinCEN") has already renewed and expanded the temporary GTO program to capture lower dollar real estate purchases and a greater number of markets, and it is possible that either the U.S. Treasury Department or Congress will effectively broaden it to apply to all real estate purchases where a shell company is involved. Also expect the House to revisit the concept of a federal beneficial ownership registry by which the true owners of limited liability companies and other legal entities created by state law must be reported to FinCEN, an idea which had emerged in the last Republican-controlled House but ultimately lost momentum.

It is possible that at least some of these ideas could gain bipartisan support and make it through the Senate and to President Trump's desk. Until then, banks, insurance companies, and other financial institutions that operate in the arts and antiquities, luxury real estate, and other areas in which the use of shell companies is common should take to heart that U.S. regulators and legislators have these areas in their sights.

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