HOLLYWOOD, Florida, March 18 (Thomson Reuters Accelus) -
U.S. efforts to prevent Iran and other countries from evading
international security sanctions may potentially be thwarted by
the use of opaque institutional accounts at brokerages that can
shield such participation from regulators, a U.S. Treasury
official warned on Monday.
So-called "omnibus accounts" comprise multiple institutional
accounts held by a brokerage on behalf of other clients. Such a
structure makes it hard to tell whether they contain any links
to a sanctioned country, said Adam Szubin, director of
Treasury's Office of Financial Assets Control.
"Where we see institutions getting into trouble is when
there are areas of their business models that are opaque,"
Szubin told a Florida conference of the Association of Certified
Anti-Money Laundering Specialists conference.
Sub-accounts "nested," or hidden within an omnibus
institutional account, may be able to escape the close ownership
scrutiny that firms normally give their customers, Szubin said.
"You're hosting business for a customer, a beneficial
owner, that may be four or five degrees removed from your
know-your-customer practice," he said. "At that point, you don't
know who your customer is."
The United States has led international efforts to freeze
Iran out of the global economy in an attempt to restrain its
nuclear-development program. The effort includes restrictions on
financial transactions linked to Iran.
Szubin suggested the sanctions-evasion potential was similar
to that posed by banking-industry payment practices which in
recent years led to a U.S. crackdown and more than $2 billion in
penalties against major international banks.
But he did not say whether a similar crackdown was likely
focused on such accounts, or whether any investigations were
underway. A Treasury spokesman did not immediately return a
request for comment.
Before a May 2009 rule change by the Belgium-based SWIFT
electronic payment system, which facilitates the bulk of global
cross-border payments, some foreign banks used so-called cover
payments to hide information about parties sending and receiving
international wire transfers from clearing banks in New York.
As a result of these practices, the U.S. banks unwittingly
processed transactions that benefited entities in Iran and other
sanctioned countries. Cover payments are closely tied to the
"stripping" penalties levied against several British and
European banks including HSBC Holdings, Standard Chartered, ING,
Barclays and Credit Suisse.
"U.S. institutions that were being so scrupulous about
opening accounts and asking the right questions of customers
would at the same time allow cover payments to go through their
institutions without asking any questions," Szubin said. "That
lack of transparency is where risk comes from."