Who Owns It? Unmasking Secret Companies Should Transcend Partisan Divide

With Democrats united in withholding their support on so many issues, Congressional Republicans have been forced to try and pass bills with only Republican support. So, it is notable and refreshing to see bipartisan sponsorship of the Corporate Transparency Act, which would put an end to a practice that allows the U.S. legal system to be used as a shelter for criminal activity.

The Corporate Transparency Act addresses the ease with which criminals in this country can create anonymous shell companies to evade law enforcement and launder ill-earned money. U.S. law allows people to set up companies without needing to identify the real “beneficial owner” of the company — that is, the person or persons actually operating and benefiting from the business’ activities. Instead, when incorporating, companies can list so-called “nominees”. Nominees can be just about anyone, from a distantly related party who can claim ignorance if the company is caught out committing wrongdoing or a lawyer protected by lawyer-client privilege. In one experiment, an activist even easily created a company using only her cat’s name. If it’s so easy for a cat to create a shell company, imagine how easy it is for criminals.

Anonymity allows criminals to carry out scams, fraud, and financial rip offs without running the risk of those actions being tied to the real person cashing out on hurting their victims. Along with just operating under anonymity to run financial scams and commit fraud, criminals often also use shell companies to launder money from other criminal enterprises, like drug trafficking.

With a few hundred dollars, some paperwork, and a good dose of creative criminal intent, just about anyone can create their own empire of shell companies to make crime profitable and make getting caught less likely. A few examples of just such enterprising criminals:

  • Texas lawyers used sham companies from Delaware and Nevada to trick elderly people into investing their life savings in worthless enterprises.
  • A Russian crime boss described by the FBI as the “most dangerous mobster in the world” set up a network of anonymous companies in the U.S. to cheat the stock market and steal over $150 million from investors in the United States and overseas.
  • A Louisiana Congressman used anonymous companies from Delaware and Louisiana to take almost half a million dollars in bribes.

These aren’t just a few outlying cases — high level law enforcement officials report that anonymous shell companies regularly make their jobs harder and make citizens less safe. In a recent study looking at 200 grand corruption cases across the globe, 70% of the crimes were facilitated by secretive company structures.

In a letter discussing the need to end anonymous companies, the Fraternal Order of Police cited the case of Michel De Jesus Huarte, who defrauded Medicare for over $4.5 million using a string of fake AIDS clinics connected to anonymous shell companies. Because Huarte was not directly tied to any of the clinics or the bank accounts into which they were dumping unearned Medicare money, law enforcement officials had to conduct a “lengthy and costly” investigation to bring him to justice. For every Michel De Jesus Huarte who is caught despite his web of shell companies, there are dozens of criminals who continue to evade law enforcement.

Thankfully, there is good news in this tale of crime and lack-of-punishment. Today, Representatives Carolyn Maloney (D-NY) and Peter King (R-NY), along with Ed Royce (R-CA), introduced the aptly named Corporate Transparency Act.

This bill would do two things: first, it requires companies to name the real “beneficial owner” when incorporating. This beneficial owner must be the actual person, with legal identification, managing the company operations, accessing and withdrawing from bank accounts, and ultimately benefiting from any business conduct. The beneficial owner can’t be a lawyer or a distant third party nominee — and they certainly can’t be a cat.

This information is collected by states or the federal government and made accessible to both law enforcement and banks.

The Corporate Transparency Act has been introduced in previous sessions, but this year the bill has earned a potentially critical mass of diverse — and bipartisan — supporters.

The problems raised by anonymous shell companies touch on traditionally Republican interests, like law enforcement and anti-terrorism. At the press conference to introduce the Corporate Transparency Act, the Chairman of the Fraternal Order of Police endorsed the legislation, saying, “The criminals we are chasing in many cases use shell companies as masks, concealing themselves while still profiting from their crimes.” Representative Steve Pearce (R-NM), Chairman of the Subcommittee on Terrorism and Illicit Finance, released a statement about the legislation, saying, “The United States must do more to cut off the ability of criminal enterprises to launder money through anonymous shell companies.”

Corporate transparency is also relevant to financial institutions, which have a responsibility to combat money laundering. The Clearing House Association, which includes banks like Capital One, State Street, and Bank of America, supports the legislation.

The bill’s support doesn’t end there, though. The need to end anonymous shell companies has been a cause taken up by advocates fighting the opioid crisis, anti-human trafficking groups,consumer advocates aiming to protect people from scams and fraud, and by small businesses who proudly list their owner’s names and know that anonymity is only useful to those with something to hide.

With this robust and diverse bipartisan support, we might finally be able to pull back the curtain on anonymous shell companies and help law enforcement put the bad guys behind bars. Republicans and Democrats must be able to agree that fighting fraudsters, scammers, drug traffickers, terrorists, human traffickers, and tax dodgers right here in the U.S is a worthy cause over which to join hands — and agreeing on that, they must pass the Corporate Transparency Act.

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