Calling for Beneficial Ownership

June 4th, 2009

An op-ed in yesterday’s Financial Times calling for a single market for banking in Europe said what was needed is “a dedicated European Union-level resolution framework that can credibly discipline Europe’s large cross-border banks while offering depositors protection equivalent to national deposit guarantee schemes.”   Sounds reasonable enough.

The article went on to say that the so-called “single passport” system, in order to reach it’s potential, “requires that the proposed EU-level supervisory authorities establish trust between home and host countries.”  What the article did not mention is that this proposed system also requires enhanced know-your-customer rules that require the banks to collect beneficial ownership information on deposits by businesses, trusts and foundations.

The flow of illicit money, tax evasion, terrorist financing and a host of other global ills can be traced to the lack of information about the beneficial owners of those types of entities. Often located in some 70 secrecy jurisdictions around the world these entities can absorb, hide and transfer wealth outside the reach of any law enforcement agency. Their activities are largely unknown (and can be moved to other jurisdictions at a moment’s notice) and they frequently have no legitimate business purpose. Furthermore, beneficiaries of these activities often remain secret. In effect these entities operate in a world very much separate from the legitimate global economy.

Not only will collecting beneficial ownership information benefit the banks by putting them in a better position to determine the credit worthiness of potential customers, it will create more transparency in the global financial system which is good for law enforcement officials and tax authorities that are in pursuit of scofflaws.

Best of all: this will cost the banks nothing.  It should be a requirement of the potential customers to provide the bank with the names of those people who enjoy the benefit of those accounts.

No beneficial ownership information?  No account with the bank.  Simple. Transparent. Safe.

Written by Tom Cardamone

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