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Just the FACTs: April 19, 2018

In January, we were optimistic that this would be the year anonymous companies would end.  Since then, the momentum for disclosure has only grown. Legal scholars and international affairs experts have recently called for action, a recent poll showed overwhelming support from small businesses, and a report from Fair Share reminded us that anonymous companies are continuing to fuel the opioid epidemic.  Between these and a recent investigation by Reuters that found Russians are using a web of anonymous companies to skirt U.S. sanctions and boost the government of Syria’s Bashar al-Assad, Iran’s Revolutionary Guard, and the Hezbollah militia, the arguments for secrecy are becoming more and more invalid.

The Flawed and Flimsy Basis for the American Bar Association’s Opposition to Anonymous Company Reform

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In last week’s post, I raised the question of why the American Bar Association (ABA), which represents the U.S. legal profession, so strenuously opposes even relatively modest measures to crack down on the use of anonymous companies for money laundering and other illicit purposes. In particular, the ABA has staked out a strong, uncompromising opposition to the bills on this topic currently under consideration in the U.S. House (the Counter-Terrorism and Illicit Finance Act) and in the Senate (the TITLE Act). As I noted in my last post, the substance of the ABA’s objections (summarized in its letters here and here) appear, at least on their surface, unpersuasive as a matter of logic, unsupported by evidence, or both. This, coupled with the fact that many ABA members strongly disagree with the ABA’s official position on this issue, made me wonder how the ABA’s President and Government Affairs Office had come to take the position that they had.

After doing a bit more digging, and talking to several knowledgeable people, I have a tentative answer: The ABA’s opposition to the currently-pending anonymous company bills is based on an aggressive over-reading of a 15-year-old policy — a policy that many ABA members and ABA committees oppose but have not yet been able to change, due to the ABA’s cumbersome procedures and the resistance of a few influential factions within the organization.

Bipartisan Bill Targets Foreign Government Corruption

The Kleptocracy Asset Recovery Rewards Act Would Establish a Rewards Program for Whistleblowers
WASHINGTON, D.C. – A bipartisan group of lawmakers introduced legislation Tuesday afternoon to combat terror finance and foreign government corruption in a move that was welcomed by the Financial Accountability and Corporate Transparency (FACT) Coalition.

U.S. Senate Hearing Cues Another Shift Towards Ending Corporate Anonymity

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In just the first two months of this year, we have seen anonymous shell companies become a major priority for Washington lawmakers.

Last week, the U.S. Senate Judiciary Committee convened to discuss legislation that would put a stop to the creation of these faceless companies. The hearing, Beneficial Ownership: Fighting Illicit International Financial Networks Through Transparency, marks the third Congressional hearing on this topic in 2018 alone. And, it is the first time that the Senate Judiciary Committee has heard such legislation. This occasion, along with other recent developments, suggests that momentum towards tackling the problems posed by anonymous companies continues to grow.

How the U.S. Became a Top Secrecy Jurisdiction

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Sometimes, ranking near No. 1 in the world is not a badge of pride. According to the Financial Secrecy Index released by the Tax Justice Network (TJN), the United States is the second largest contributor to financial secrecy in the world, placing it in the company of infamous tax havens such as Switzerland (ranked No. 1) and the Cayman Islands (ranked No. 3). Financial secrecy is enabling people to hide income from the authorities to evade taxes or financial regulation, launder profits from crime, finance terrorism, or otherwise break the law.

As the new TJN report explains, the United States contributes more to financial secrecy in the world than any country other than Switzerland for two reasons. First, this country has the largest share (22.3 percent) of the global market for offshore financial services. Second, several U.S. states promote financial secrecy by allowing individuals to form corporations without providing any real identifying information. In some states, people who want a library card must provide more identifying information than those who want to incorporate. The result is a huge amount of money held in shell companies in the United States that cannot be traced to any individual anywhere in the world.