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(In paragraph 2, corrects name to Office of Foreign AssetsControl)
By Brett Wolf
HOLLYWOOD, Florida, March 18 (Thomson Reuters Accelus) -U .S. efforts to prevent Iran and other countries from evadinginternational security sanctions may potentially be thwarted bythe use of opaque institutional accounts at brokerages that canshield such participation from regulators, a U.S. Treasuryofficial warned on Monday.
So-called "omnibus accounts" comprise multiple institutionalaccounts held by a brokerage on behalf of other clients. Such astructure makes it hard to tell whether they contain any linksto a sanctioned country, said Adam Szubin, director ofTreasury's Office of Foreign Assets Control.
"Where we see institutions getting into trouble is whenthere are areas of their business models that are opaque,"Szubin told a Florida conference of the Association of CertifiedAnti-Money Laundering Specialists.
Sub-accounts "nested," or hidden within an omnibusinstitutional account, may be able to escape the close ownershipscrutiny that firms normally give their customers, Szubin said.
"You're hosting business for a customer, a beneficialowner, that may be four or five degrees removed from yourknow-your-customer practice," he said. "At that point, you don'tknow who your customer is."
The United States has led international efforts to freezeIran out of the global economy in an attempt to restrain itsnuclear-development program. The effort includes restrictions onfinancial transactions linked to Iran.
Szubin suggested the sanctions-evasion potential was similarto that posed by banking-industry payment practices which inrecent years led to a U.S. crackdown and more than $2 billion inpenalties against major international banks.
But he did not say whether a similar crackdown was likelyfocused on such accounts, or whether any investigations wereunderway. A Treasury spokesman did not immediately return arequest for comment.
Before a May 2009 rule change by the Belgium-based SWIFTelectronic payment system, which facilitates the bulk of globalcross-border payments, some foreign banks used so-called coverpayments to hide information about parties sending and receivinginternational wire transfers from clearing banks in New York.
As a result of these practices, the U.S. banks unwittinglyprocessed transactions that benefited entities in Iran and othersanctioned countries. Cover payments are closely tied to the"stripping" penalties levied against several British andEuropean banks including HSBC Holdings, Standard Chartered, ING,Barclays and Credit Suisse.
"U.S. institutions that were being so scrupulous aboutopening accounts and asking the right questions of customerswould at the same time allow cover payments to go through theirinstitutions without asking any questions," Szubin said. "Thatlack of transparency is where risk comes from."
(Editing by Randall Mikkelsen and Bob Burgdorfer)
