Opinion: Unite to crack open shell corporations
This summer, the U.S. Justice Department won a long battle against banks affiliated with the government of Iran that secretly violated economic sanctions by purchasing property in New York City.
It is difficult to imagine: A rogue nation chose to evade sanctions not by hiding money in North Korea or China or Russia but in the United States. And they did so in our home state of New York.
After looking further into how this could happen, we discovered that the scheme was made possible through the use of anonymous shell companies that disguise the identity of those behind the deal from the sellers, law enforcement and those charged with protecting our homeland security.
The Iranians were not the first nor will they be the last to use anonymous companies to launder proceeds of illicit activities. Human traffickers, drug cartels, corrupt foreign officials, illegal arms dealers and numerous fraudsters — who steal from taxpayers and endanger our troops — all are using anonymous companies.
Our colleague and chairman of the House Subcommittee on Terrorism and Illicit Finance, Steve Pearce, remarked in a recent hearing that drug cartels using anonymously owned trucking companies in New Mexico are “weakening the economic framework by which other companies can be successful” and that they “drain resources” that could be used to create work opportunities.
U.S. financial institutions spend an estimated $8 billion each year on anti-money-laundering efforts. While we passed additional anti-money-laundering rules after the Sept. 11th attacks, such as requiring financial institutions to know their customers, we have not provided law enforcement or financial institutions one of the basic tools to effectively stop the next Iran — or Iran itself — from again hiding money in our country.
In other words, we haven’t required these anonymous shell companies to no longer be anonymous. As a result, anti-money-laundering experts estimate we fail to seize dirty money 99.9% of the time. One financial crimes expert has noted that we are a decimal point away from complete failure.
It is time we took a fresh look at how to address the problem. The new administration has said it wants to prioritize efforts to counter terrorism and domestic crime. We say, “Follow the money.” That is why we recently introduced the bipartisan Corporate Transparency Act of 2017.
The bill asks companies to name the true owners — also known as “beneficial owners” — at their time of incorporation. This is a relatively simple yet effective approach that has garnered an impressive array of support.
Financial institutions, large and small, have come out in support of the bill because it will help them protect their businesses from being used to launder money. Small businesses, frustrated with losing out on contracts to con artists, have added their support. Police, prosecutors and those fighting human trafficking all signed on.
Veterans outraged by what they saw during their service — scammers diverting billions of defense dollars to corrupt foreign officials or, worse, our enemies who seek to do us harm — are on board as well. One report found U.S. funds were paid to anonymous companies secretly owned by the Taliban. This must stop.
Many CEOs of large businesses also understand the benefits of transparency and the importance of combating the disruption caused by anonymous companies. In a recent letter addressed to us, several business leaders wrote, “When the true owners of companies put their own name on corporate formation papers, it increases integrity in the system and provides a higher level of confidence when managing risk, developing supply chains and allocating capital.”
The growing recognition of the dangers of anonymous companies offer us an opportunity to effectively respond. After years of mounting examples, we now have a clear record of the threats and the damage caused. We look forward to working with our colleagues to end the use of anonymous companies to shield illicit finance that poses a risk to our national security and undermines our economy.
Maloney, a Democrat, and King, a Republican, represent New York in the House of Representatives.