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By Brett Wolf and Aruna Viswanatha
WASHINGTON, March 20 (Reuters) - The U.S. TreasuryDepartment is trying to strike a balance between the need forinformation from banks to help it nab hidden account owners andadministrative demands that a rule toward that end might createfor the banks.
Senior Treasury officials said the department will releasein coming weeks a proposal aimed at money laundering that wouldforce financial institutions to report the "beneficial," ortrue, owners of certain accounts.
Banks have been anxiously awaiting the proposal's language,fearing that a strict approach could mean they have to spendhuge amounts of time and money investigating the beneficialowners of thousands of legal entities they do business with.
David Cohen, a top Treasury official, said in an interviewthat he expects the rule to require different degrees of inquiryin different circumstances.
"There is a recognition that the financial sector iscomplex, and one-size-fits-all is not suitable here," saidCohen, Treasury's undersecretary for terrorism and financialintelligence, in an interview last week.
Cohen declined to discuss specifics of the rule, but he saidthe extra information will help the U.S. government pursue moneylaunderers trying to hide their identities behind shellcompanies and other legal entities, even if banks don't fullycheck the accuracy of the information.
"One of the motivations is for law enforcement during thecourse of their investigations to not hit that brick wall and beable to get behind the account holder," Cohen said.
U.S. authorities have stepped up their enforcement ofanti-money laundering laws in an effort to clamp down on conductranging from drug trafficking to terrorism, and have enteredinto cease and desist orders with top banks including JPMorgan and Citibank related to weak internal controls.
In December, HSBC agreed to pay a record $1.9billion, in part to resolve charges that it failed to detect ariver of drug money flowing from Mexico into the United States.
Treasury said in February 2012 it planned to propose a ruleto force financial institutions to determine the true owners ofaccounts held in the names of legal entities such ascorporations. It held five public hearings around the country and received around 90 comment letters, but has not yet come outwith its proposal.
Some banks, broker-dealers and other firms already seek suchinformation about their riskiest accounts, but the rule wasenvisioned as a way to provide a more uniform approach for theindustry and determine exactly when banks need to obtain suchinformation.
Some firms expressed skepticism about how valuable thatinformation could be, since many states don't even collectinformation about who a beneficial owner is when incorporating anew company, making it difficult for banks to vet the detailswithout launching a full-scale investigation into each account.
"At this point, it is simply not feasible to imposebroad-based beneficial ownership requirements on U.S. financialinstitutions in the absence of congressional legislationrequiring the collection and maintenance of publicly availablebeneficial ownership information at the time legal entities arecreated in the United States," the Financial Services Roundtablesaid in its comments about the rule last year.
But just having the name of a beneficial owner, even if itisn't verified, is still useful, officials said. If an accountsignatory lies about who the owner is, it could be amisrepresentation that authorities can act on.
"Make somebody say 'I'm the beneficial owner, I'm not thebeneficial owner.' Make that a real person," Chip Poncy, whoheads the Treasury office of strategic policy for terroristfinancing and financial crimes, said at an industry conferencein Florida last month.
Law enforcement officials "have insisted ... this is useful,either for purposes of proving criminal intent or just as havingleverage in an investigation," he said.
Treasury officials have also expressed support forlegislation that would require the government to collect moreinformation about ownership when legal entities incorporate.
During a speech at a separate anti-money launderingconference in Florida on Tuesday, Jennifer Shasky-Calvery, whoheads Treasury's anti-money laundering unit, the FinancialCrimes Enforcement Network, or FinCEN, said the government mustdo more to make information about beneficial ownershipavailable.
Cohen also said in the interview that enforcement bodieshave stepped up efforts to build cases against individuals, inaddition to institutions, for money laundering lapses.
U.S. authorities faced public backlash after the HSBCsettlement for failing to punish any bankers, either criminallyor civilly, and Cohen said FinCEN is looking more closely atexisting powers that could be used to hold individualsresponsible.
"All of these entities act through people," Cohen said. "That had not been a priority in FinCEN enforcement actions inthe past."
