2018: The Year Anonymous Companies End

By Jacob Wills

2018 is shaping up to be the year that the abuse of Anonymous shell companies is finally put to an end in the United States.  Last week, the Senate Banking Committee held their second hearing of the month, and, just like the first hearing, the witnesses urged members to take action on anonymous companies.  One of the witnesses, Acting Deputy Assistant Attorney General M. Kendall Day, repeatedly called on lawmakers to tackle beneficial ownership requirements, adding that it would allow them to “bring more cases, more quickly, with more impact if we had a better system in place to make that information available to law enforcement.” Pressed by Sen. John Kennedy (R-LA) the second witness, Treasury Under Secretary for Terrorism and Financial Crimes Sigal Mandelker, responded that they were studying the issue carefully and hoped to have recommendations within 6-months.

Both hearings focused on the Bank Secrecy Act, the 1970 law that established much of the nation’s anti-money laundering (AML) framework, and ways to make the U.S. AML regime more efficient and effective. Though witnesses shared differing views on many of the topics discussed, on anonymous companies there was unanimous support for action.  Many of the issues raised (such as cryptocurrencies, for example) will take months of debate to find the best solution, but beneficial ownership was certainly not one of them.  In the first hearing earlier this month, when each of the three witnesses were asked if they supported beneficial ownership disclosure, they responded in succession: “yes”, “yes”, “yes”.

Which shouldn’t be a surprise.  Dennis Lormel, former Chief of the FBI Financial Crimes Program, shared many of the concerns expressed by DAAG Kendall Day.  It can be immensely frustrating for law enforcement who come across shell companies; often they stop investigations dead in their tracks.  Other prominent law enforcement officials have shared this frustration, including the Federal Law Enforcement Officers Association (FLEOA) and the National Fraternal Order of Police.  Law enforcement officials are deeply concerned with the way in which human traffickers and drug traffickers are able to use anonymous companies to shield operations.  A concern shared by experts working to end human trafficking.

Another witness, Greg Baer, the President of the Clearing House Association, a trade group representing many of the largest commercial banks in the country, pointed out the absurdity of requiring banks to know their customers and at the same time allowing companies to be set up anonymously.  In essence, collecting beneficial ownership information and disclosing it to banks and law enforcement would itself carry out the objective of the committee—make the nation’s anti-money laundering laws both more efficient and effective.   This information would help banks keep their institutions from being used by money launderers and keep the money from entering into our financial system. Which is why the Clearing House is not alone in their support; the American Bankers Association, the Bankers Association for Finance and Trade (BAFT), the Credit Union National Association (CUNA), the Consumer Bankers Association, the Financial Services Roundtable, the Independent Community Bankers of America (ICBA), the Institute of International Bankers (IIB), the Institute of International Finance (IIF), the Mid-Size Bank Coalition of America, the National Association of Federally-Insured Credit Unions (NAFCU), the Regional Bank Coalition, and the Securities Industry and Financial Markets Association (SIFMA) all voiced their support for beneficial ownership transparency in a letter to lawmakers this month.

Banks are not the only business groups to voice support. Last year a group of prominent business leaders, known as The B-Team, released a report that sets out the ‘business case’ for beneficial ownership transparency, drawing on some powerful economic arguments.  The report argues that the costs of corruption amounts to a 10% global tax on business.  They argue that disclosure of who owns companies would help to increase competitiveness, manage financial exposure, and reduce impunity.  Adding that knowing who you are doing business with is essential to preventing the misallocation of capital and reducing legal liabilities of unknowingly doing business with people subject to sanctions.  The report was followed up with a letter of support from the CEOs of Allianz, The Dow Chemical Group, Kering Group, Salesforce, Unilever, and Virgin Group.

A number of small business organizations have likewise written in support of beneficial ownership disclosure, noting that small businesses are at an even greater risk of contract fraud and supply chain problems because they don’t have the same resources that large businesses have to do due diligence on their vendors.

Investors have also shown a strong interest in disclosure. Last June, 27 institutional investors, representing more than $855 billion in assets under management, sent letters to Congress expressing “strong support for corporate ownership transparency legislation.”  They argue that anonymous companies prevent businesses from conducting proper due diligence in their supply chains, thereby, exposing them and their investors to undue risk.

Businesses, police and prosecutors, and financial institutions are joined by at least 44 non-profit, transparency, and anti-corruption organizations, who have called for action, as well as by faith leaders, who have witnessed the ways in which these companies can devastate communities and exacerbate poverty globally.

With such broad-based support, bills in Congress are gaining traction.  The House’s Corporate Transparency Act of 2017 (H.R. 3089) has rare bipartisan support, with 5 Republican and 6 Democratic sponsors. The companion to the Corporate Transparency Act was introduced in the Senate last August, by Senators Ron Wyden (D-OR) and Marco Rubio (R-FL). A second House bill, the draft Counter Terrorism and Illicit Finance Act, crafted by Reps. Steve Pearce (R-NM) and Blaine Luetkemeyer (R-MO), is being negotiated in the House Financial Services Committee.

On top of the hearings in the Senate Banking Committee, the Judiciary Committee is planning a hearing on the bipartisan True Incorporation Transparency for Law Enforcement (TITLE) Act (S. 1454).  The bill which was introduced by Senator Whitehouse (D-RI), has the co-sponsorship of the Republican Chair of the Committee, Senator Chuck Grassley (R-IA), and its Ranking Member, Senator Dianne Feinstein (D-CA).

A host of other bills and proposals have been introduced in the last year that seek to tackle the problems posed by anonymous companies including legislation that targets one of the most troubling abuses of anonymous companies—the ways they threaten national security. These companies have been used to defraud the military by selling shoddy equipment, shield terrorist’s finances, and help with the evasion of sanctions.

Internationally, the issue is already miles ahead. Last month, the European Union agreed on landmark measures that will require companies to publicly disclose their beneficial ownership information. Beneficial owners of trusts will likewise have to be disclosed across the EU, albeit not publicly. In a recent blog, the ONE Campaign’s Joseph Kraus argued that it’s time for the U.S. to catch up.

There is no doubt an opportunity to do that.  Justifications for lagging U.S. policies are fading while the urgency for action is growing.  The progress that was made last year is promising; 2018 could be the year we end anonymous shell companies once and for all.  The momentum is there.  The support is there.  And the need is as great as ever.

Jacob Wills is a Communications Associate with the FACT Coalition.