Anti-Laundering Bill Targeting Shell Companies Stalled in Senate as Big
Banks Caught Cooking Books
The Anti-Money Laundering Act would expose the owners of shell companies now
sits alone on a shelf in the US Senate while the Federal Reserve shrugs its
shoulders in the face of blatant manipulation by the too-big-to-fail banks.
by Raul Diego
August 12th, 2020
By Raul Diego
Money laundering and cooking the books are usually treated as separate
things when discussing white collar crime, even though the latter is often
the mechanism through which the former is carried out. In the world of
corporate banking, hedge funds and the host of satellite market services
that underpin the financialized economies of the U.S. and U.K., tax haven
jurisdictions allow money flowing in from all sorts of highly profitable
illicit activities, shell companies and brass plate trusts to become an
asset on the books of massive institutions like JPMorgan Chase, Deutsche
Bank, and HSBC; all of which have been embroiled in massive money laundering
scandals.
Real account holders' names escape regulatory scrutiny thanks to the
anonymity the current rules of the game allow them to enjoy. But, that might
soon come to an end if a bill passed by the House of Representatives makes
it past the Senate. The Anti-Money Laundering Act was tucked inside the
House's version of the 2020 National Defense Authorization Act and mandates
the creation of a "beneficial ownership" record which would force the public
disclosure of any U.S.-based company's ownership.
The thought of the real names behind the plethora of shell companies and
other shady instruments of finance being exposed must have sent a shiver
down the back of more than one Senator, because the bill has been excised
from the Pentagon's annual budget authorization by the upper chamber,
placing the proposed legislation in a state of limbo for the time being.
A beneficial ownership record would seriously curtail tax haven entities
from operating in complete darkness, as they do now. The U.K. created its
register in 2016 and Europe has been directed by Brussels to have one up and
running by 2020. The legislation, which has earlier iterations known as the
Illicit Cash Act and Corporate Transparency Act, was passed by a large
majority in the lower house and reportedly has widespread support in the
Senate, as well.
Transparency is too risky
Despite the already semi-opaque structure of the current bill, members of
the Senate still want more. Unlike the U.K. version, which makes the data
publicly available, the U.S. version would be controlled by the Treasury
Department's Financial Crimes Enforcement Network (FinCEN) and only be
accessible to law enforcement agencies.
The Senate Banking Committee has, reportedly already agreed on the bill's
language and only the funding source is a question mark, at this point. It
is clear that the legislation has accrued momentum and will likely pass at
some point. 42 Attorney Generals have urged the federal government to pass
it and in June, the U.S. Chamber of Commerce sent a letter in support to the
Banking Committee.
As usual, the words sound very nice and a lot of people seem to be doing the
right thing. But, history does not show a promising outcome. The measures
put in place after 2008 in order to restrain the impulses of the
"too-big-to-fail" financial institutions are being manipulated and, in some
cases, completely ignored. Banks like JP Morgan Chase and HSBC - two of the
biggest money launderers on earth - all seem to have a gentlemen's
understanding with the Federal Reserve about how the new rules are applied.
Gaming the system
After the crash of 2008, the Federal Reserve instituted so-called "stress
tests" on banks and other financial institutions that had then been deemed
"too big to fail". A formal list has been compiled since 2011 and they are
now called by their official designation, Global Systemically Important
Financial Institutions (G-SIFIs).
These banks and insurers must report their levels of exposure to the Fed,
which then assesses the need for more or less control over the institution's
financial activity or penalties through the results of a stress test
(simulations run on their balance sheets). An annual stress test report is
published by the Fed, which includes the capital requirements of each
institution. But, it has now come to light that virtually all of the G-SIFI
banks - JP Morgan Chase, HSBC and Deutsche Bank among others - have been
cooking the books to fool the stress test in order to reduce their capital
requirements.
A "bombshell" report by the American central bank reveals that the Fed is
aware of the pattern being followed by the big banks to game the stress
test; which they do by magically dropping their over-the-counter derivatives
exposure by Trillions of dollars every fourth quarter and just as magically
having it restored by the end of the following first quarter of the next
auditing period. The practice, which seems to be tolerated by the Fed "as a
legitimate means of reducing its capital requirements" makes a mockery of
the entire point for stress testing, which is to mitigate systemic risk.
Feature photo | An activist displays a newspaper headlining the 'Panama
