Bank shell company rule nears approval as final draft sent to White House

(This April 15 story was refiled to correct spelling error in paragraph five)

The North Portico of the White House is seen during a sunset in Washington March 28, 2016. REUTERS/Yuri Gripas

WASHINGTON (Reuters) - The U.S. Treasury Department inched closer on Friday toward finalizing a rule requiring banks to identify the legal owners of shell companies, a move it hopes will help prevent illegal financial activities such as money laundering.

The White House’s Office of Management and Budget announced it has commenced its review of the final rule, which the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) submitted earlier this week.

The OMB review, which could take about 90 days, marks the last step in the process before the rule can become final.

The last stages of the rulemaking process, which commenced in 2012, come after a massive data breach at Mossack Fonseca, a Panamanian law firm that specializes in setting up off-shore shell companies.

The leak triggered investigations around the globe into whether politicians and public officials used these off-shore shells for illicit activities, including dodging taxes, laundering money or hiding business activities with drug cartels and terrorist organizations.

The International Consortium of Investigative Journalists (ICIJ), which pored over the records during a year-long investigation, found that major banks such as Credit Suisse, HSBC, UBS and Societe Generale, are among a group of 10 financial institutions that requested the most off-shore companies for clients.

The ICIJ plans to release a full list of people and companies tied to the off-shore shell companies in early May.

Federal anti-money laundering rules already generally require banks and brokerages to take steps to make sure they “know their customers” who open accounts.

However, current rules do not require them to identify the true owners behind shell companies, a loophole law enforcement agencies say can hinder their investigations into activities such as money laundering and tax evasion because it gives criminals a degree of anonymity.

FinCEN does not have legal authority to regulate these corporate entities, but it does have the power to oversee many financial institutions that do business with them such as banks and stock brokers.

The rule would impose additional requirements on banks to verify the identity of the actual individuals who own and control the shell companies.

The final version of the rule will not be known until after the OMB completes its review.

Reporting by Sarah N. Lynch; Editing by Meredith Mazzilli