Criminals and kleptocrats will find it harder to launder money in U.S. if bill passes

May 6, 2019
In The News

Rep. Carolyn B. Maloney (D-N.Y.) is the lead sponsor of the Corporate Transparency Act of 2019. (Andrew Harrer/Bloomberg News)

The United States could join a growing list of countries cracking down on anonymous shell companies if a bill gathering support in the House continues gaining steam.

The bill, set for discussion as early as Wednesday in the House Financial Services Committee, would require companies established in the United States to disclose their real owners to the Treasury Department, making it harder for criminals, terrorists and kleptocrats to anonymously launder money or evade taxes.

While anti-corruption campaigners have long fought for such a measure, more recent support from the banking industry and national security hawks has brightened prospects for bipartisan backing, proponents say.

“It is absurd that the U.S. allows criminals to launder their money here. We’re the only advanced country in the world that doesn’t already require disclosure” of company ownership, said Rep. Carolyn B. Maloney (D-N.Y.), lead sponsor of the Corporate Transparency Act of 2019.

Anti-money-laundering activists say tolerance for shell-company anonymity makes the United States a weak link in the global fight against crime, and have urged it to join the European Union and other developed economies in demanding more disclosure.

The Trump administration and some congressional Republicans have voiced support for the idea, with Treasury Secretary Steven Mnuchin last month saying the House bill looked promising.

Nearly 2 million corporations and limited liability companies are registered each year in the United States, at the state level. Few states require companies to disclose their true owners, with Delaware and a few others turning the registration of anonymous companies into big business.

That’s one reason the U.K.-based Tax Justice Network last year named the United States the globe’s second most financially secretive jurisdiction, behind Switzerland and ahead of the Cayman Islands.

Law enforcement authorities have linked anonymous U.S. shell companies to many crimes. Viktor Bout, a Russian arms trafficker serving a 25-year federal prison sentence for illegal weapons sales, used U.S. shell companies in his dealings, according to the Treasury Department. Federal officials say they think the Sinaloa cartel has used U.S. shell companies for its narcotics trafficking. And in 2013 a federal judge found that an anonymous New York company that owned part of an office tower was acting as a front for Iran, in violation of U.S. sanctions.

“Support for this bill has increased as a range of unlikely allies now see this as a tool to combat a wide variety of criminal and corrupt activities, from human trafficking to insurance fraud and everything in between,” said Mark Hays, an anti-money-laundering campaigner at the nonprofit group Global Witness.

Anti-corruption activists say the House bill, also sponsored by Reps. Peter T. King (R-N.Y.) and Tom Malinowski (D-N.J.), has limitations. It would allow law enforcement agenciesand banks to view the ownership information, but not the public, a disappointment to some who say public scrutiny would help combat criminal activity.

“Every official member of our coalition agrees that this information should ultimately be made public,” said Clark Gascoigne, deputy director of the Financial Accountability and Corporate Transparency Coalition, a group uniting labor unions, nonprofit groups and others. Supporting the bill’s more limited access “was a major compromise that we agreed to make to get something positive done now,” he said.

The House bill would not force states to collect ownership information. But it would require states to notify companies that they must report their owners to the Treasury Department, with possible civil and criminal penalties for failure to comply.

In the Senate, different groups of legislators are working on possible companion bills, with a bipartisan team including Sens. Tom Cotton (R-Ark.) and Mark R. Warner (D-Va.) considering mandating ownership disclosure in a package of anti-money-laundering legislation.

Mnuchin has also expressed support for the idea, and last month told Maloney during a House hearing that the draft bill was “headed in the right direction.”

“I hope this is something that on a bipartisan basis we can get accomplished both here and [in] the Senate,” Mnuchin said.

Other developed nations are also cracking down on anonymous shell companies, responding to fears about terrorist financing, and public outrage about corruption and tax evasion. The E.U. last year instructed all member countries to create public databases by 2020 that disclose companies’ true owners. Britain had mandated the same in 2016.

The European moves were in part a response to the Panama Papers, a cache of law firm documents leaked to the public in 2016, revealing that more than 100 public figures worldwide were holding assets in anonymous shell companies based in offshore tax havens.

Iceland’s prime minister resigned for failing to disclose ownership of a company revealed by the leak. And in December, the Justice Department issued its first indictment tied to the Panama Papers, charging four people with scheming to hide tens of millions of dollars from the Internal Revenue Service.

The banking industry has become an important backer of the House bill, after realizing it would help banks identify the real owners of all accounts, as required under Obama-era regulation.

“Currently every bank needs to do that for every customer, and there’s no central database to consult,” said Greg Baer, chief executive of the Bank Policy Institute, a lobbying group.

The House bill would make the process easier for banks, allowing them to access the Treasury ownership database to verify information on new customers requesting accounts. Banks wouldn’t “have to play hide-and-seek with every corporate customer,” Baer said.