Eight Key Senators Introduce Bipartisan Bill to Combat Anonymous Companies

ILLICIT CASH Act Opens Viable Pathway to Senate Passage

Statement by Gary Kalman, Executive Director of the FACT Coalition

WASHINGTON, D.C. — A bipartisan group of eight U.S. senators on a key Senate committee introduced legislation Thursday to update federal anti-money laundering laws and end the incorporation of anonymous companies in the U.S.  Titled the Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (ILLICIT CASH) Act (S.2563), the measure is sponsored by Senators Mark Warner (D-VA), Tom Cotton (R-AR), Doug Jones (D-AL), Mike Rounds (R-SD), Bob Menendez (D-NJ), John Kennedy (R-LA), Catherine Cortez Masto (D-NV), and Jerry Moran (R-KS), who all sit on the relevant Senate Committee on Banking, Housing, and Urban Affairs.

The ILLICIT CASH Act opens a viable pathway to Senate passage after the House of Representatives Committee on Financial Services voted in favor of a measure with similar provisions — the Corporate Transparency Act of 2019 (H.R.2513) — by a bipartisan vote of 43-16 in June of this year.  Both bills would require companies to disclose their true (i.e. beneficial) owners when they incorporate and keep their ownership information up-to-date.

Gary Kalman, the executive director of the Financial Accountability and Corporate Transparency (FACT) Coalition, issued the following statement:

“For years, rogue actors have been using anonymous companies formed in the U.S. to evade sanctions and finance terrorist networks.  Human trafficking operations and drug cartels launder money through secret U.S. company structures, and corrupt foreign officials exploit the loopholes in our laws to hide the funds they pilfer from national treasuries.  The ease with which bad actors can hide illicit cash in the U.S. undermines our national security, props up rogue leaders and renegade regimes, and destroys lives — both here and abroad.

“The ILLICIT CASH Act is a direct and effective response to the dangers and devastation that result from the lack of safeguards to protect our financial system from abuse.

“For more than a year, the bill sponsors have been working across party lines to find ways to address these threats.  Ending the ability of the criminal and corrupt to hide behind anonymous shell companies is essential.  The current lack of information on company ownership is now widely recognized as the critical missing piece of information in tracking bad actors.  The ILLICIT CASH Act requires a basic level of transparency that, for the first time, will allow police, prosecutors, national security officials, and others to follow the money.

“We applaud the leadership of Senators Warner, Cotton, Jones, Rounds, Menendez, Kennedy, Cortez Masto, and Moran and appreciate the long and difficult negotiations that led to this introduction.  There are some provisions that we hope can be refined as the bill moves forward, but, after more than a decade of Senate debate and inaction on the issue of anonymous companies, the sponsors have produced a bill that closes the single most significant gap in our anti-money laundering laws. And a bill with an extremely broad and diverse range of support.

“We look forward to working with the sponsors as well as Committee and Senate leadership to move this effort forward.”

###

Journalist Contact:

Clark Gascoigne
Deputy Director, The FACT Coalition
+1 202 810-1334
cgascoigne@nullthefactcoalition.org

Notes to Editors:

  • Click here for an online version of this press release.
  • Click here to read a 1-page summary of the ILLICIT CASH Act.
  • Click here to read a section-by-section summary of the ILLICIT CASH Act.
  • Click here to read the full legislative text of the ILLICIT CASH Act.
  • Click here for a list of individuals and organizations endorsing beneficial ownership transparency.

Letter to Congress in Support of Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2019

The Financial Accountability and Corporate Transparency Coalition (FACT Coalition) sent a letter to the Senate Committee on the Judiciary in support of the Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2019. The full letter can be read below or downloaded here.

____________________

Download Letter as PDF

July 12, 2019

The Honorable Charles Grassley
Chairman, Committee on the Judiciary
United States Senate
135 Hart Senate Office Building
Washington, D.C. 20510

The Honorable Dianne Feinstein
Ranking Member, Committee on the Judiciary
United States Senate
331 Hart Senate Office Building
Washington, D.C. 20510

RE:   Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2019

Dear Chairman Grassley and Ranking Member Feinstein,

On behalf of the Financial Accountability and Corporate Transparency Coalition (FACT Coalition), we write in support of the Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2019.

The FACT Coalition is a non-partisan alliance of more than 100 state, national, and international organizations in the United States promoting policies to combat the harmful impacts of corrupt financial practices.1

It has been almost two years since the FACT Coalition issued a report indicating that, worldwide, anti-money laundering efforts are currently just a decimal point away from total failure.2  This failure to follow the money undermines efforts to protect the safety of the our communities and ensure our national security.  Money laundering fuels the opioid crisis 3 and human trafficking operations.  Money laundering props up corrupt foreign leaders and is the mechanism through which rogue nations evade economic sanctions and terror organizations finance their operations.4

As former U.S. Treasury Special Agent John Cassara — the author of our report — notes, “outside of crimes of passion, criminals, kleptocrats, and unscrupulous companies are typically motivated by greed.”  Criminals have built sophisticated financial networks and we need to update our laws in response.  This legislation is an important step toward strengthening the U.S. anti-money laundering regime.

While we are very supportive of many of the provisions in the bill, the Coalition is particularly appreciative of Section 11, which would make tax evasion a predicate offense for money laundering.  It is estimated that the U.S. loses between $35 billion and $70 billion each year in revenue due to offshore tax evasion by individuals.5  The numbers are even higher if domestic tax evasion is taken into account.  Section 11 will make it increasingly difficult for criminals to defraud U.S. taxpayers while simultaneously assisting our allies around the world — particularly those in the developing world — where revenue shortfalls have life and death implications for millions of people.

We thank you for your leadership on this important issue and we look forward to working with you in the coming months to move this legislation forward.

For additional information, please contact Clark Gascoigne at cgascoigne@nullthefactcoalition.org or +1 (202) 810-1334.

Sincerely,

Gary Kalman
Executive Director
The FACT Coalition

Clark Gascoigne
Deputy Director
The FACT Coalition

cc          Members of the U.S. Senate Committee on the Judiciary

 

FOOTNOTES:

  1. For a full list of FACT Coalition members, visit https://thefactcoalition.org/about/coalition-members-and-supporters/.
  2. John Cassara, “Countering International Money Laundering,” The FACT Coalition, August 23, 2017, http://thefact.co/JwVhb.
  3. Nathan Proctor and Julia Ladics. “Anonymity Overdose: Ten Cases that Connect Opioid Trafficking and Related Money Laundering to Anonymous Shell Companies” Fair Share Education Fund, August 1, 2016, http://www.fairshareonline.org/sites/default/files/AnonymityOverdose_Aug1_2016.pdf.
  4.  The FACT Coalition, “FACT Sheet: Anonymous Companies and National Security,” May 17, 2019, http://thefact.co/LEfbo.
  5. The FACT Coalition, “FACT Sheet: Offshore Tax Haven Abuse,” November 3, 2017, http://thefact.co/cSulP.

 

About the FACT Coalition

The Financial Accountability and Corporate Transparency (FACT) Coalition is a non-partisan alliance of more than 100 state, national, and international organizations working toward a fair tax system that addresses the challenges of a global economy and promoting policies to combat the harmful impacts of corrupt financial practices.

Download Letter as PDF


1225 Eye St. NW, Suite 600 | Washington, DC | 20005 | USA
+1 (202) 827-6401 | @FACTCoalition | www.thefactcoalition.org


CUNA Letter on the Corporate Transparency Act

On June 11th, the Credit Union National Association (CUNA) wrote a letter to Patrick McHenry and Maxine Waters of the House Financial Services Committee in order to express support for the Corporate Transparency Act. The full letter can be read below or downloaded here.

____________________

Download Letter as PDF

June 11, 2019

The Honorable Maxine Waters
Chairwoman
U.S. House Committee on Financial Services
2129 Rayburn House Office Building
Washington, D.C. 20515

The Honorable Patrick McHenry
Ranking Member
U.S. House Committee on Financial Services
4340 O’Neill House Office Building
Washington, D.C. 20024

Dear Chairwoman Waters and Ranking Member McHenry:

On behalf of America’s credit unions, I am writing to express support for four measures that the committee will mark up this week, H.R. 2513, the Corporate Transparency Act of 2019; H.R. 3111, the National Flood Insurance Program Administration Reform Act of 2019; H.R. 3167, National Flood Insurance Program Reauthorization Act of 2019; and H.R. 2162, the Housing Financial Literacy Act of 2019. The Credit Union National Association (CUNA) represents America’s credit unions and the 115 million members that they serve.

H.R. 2513, the Corporate Transparency Act of 2019

Credit unions support efforts to track money laundering and terrorist financing, but also believe it is important to strike the right balance between the compliance costs to financial institutions, like credit unions, and the benefits to the federal government. Thus, we support H.R. 2513, the Corporate Transparency Act of 2019, which address the redundancies, unnecessary burdens, and opportunities for efficiencies within the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) statutory framework. However, it is important to note that regulatory regimes like the Bank Secrecy Act can cause an undue burden for smaller financial institutions and should be a scalable framework.

H.R. 3111, the National Flood Insurance Program Administration Reform Act of 2019 and H.R. 3167, National Flood Insurance Program Reauthorization Act of 2019

Many credit union members live in communities designated as Special Flood Hazard Areas subject to mandatory flood insurance requirements and many of those same members rely upon the coverage offered under the National Flood Insurance Program (NFIP) to insure against the risk of a natural disaster. The NFIP has been a source of uncertainty and instability in the housing sector due to repeated lapses in the Program’s reauthorization and short-term extensions. While we support H.R. 3111, the National Flood Insurance Program Administration Reform Act of 2019 and H.R. 3167, National Flood Insurance Program Reauthorization Act of 2019, CUNA has consistently encouraged Congress to work on a long-term solution to enhance the affordability and ultimate sustainability of the National Flood Insurance Program in order to restore certainty to the market.

H.R. 2162, the Housing Financial Literacy Act of 2019

Ensuring consumers have the appropriate financial information and support from the start in the homebuying process is critical. The Department of Housing and Urban Development (HUD) currently has the authority to provide premium discounts for to incentivize financial counseling, however the cuna.org authority is currently not being used. As such, CUNA supports H.R. 2162, the Housing Financial Literacy Act of 2019, which would require the Secretary of HUD to provide a 25-basis point discount in FHA insurance premiums for first-time homebuyers that complete a financial counseling course.

On behalf of America’s credit unions and their 115 million members, thank you for the opportunity to share our views.

Sincerely,

Jim Nussle
President & CEO


Video: FACT’s Executive Director Speaks on Anti-Kleptocracy Panel at the Harriman Institute

New Direction in Anti-Kleptocracy Forum
Harriman Institute at Columbia University
New York, NY

On Tuesday April 2, FACT’s Executive Director joined a panel discussion hosted by the Harriman Institute at Columbia University. The panel discussed the expansion of anti-corruption enforcement in the U.S., as well as the challenges of researching oligarchs and recent developments in anti-corruption work.

In the first video, Berit Berger of CAPI, Thomas Firestone of Baker & McKenzie, and Gary Kalman of FACT Coalition participated in a conversation about kleptocracy and illicit behavior conducted through the use of anonymous companies. Kalman discussed the ways in which the heightened disclosure of beneficial ownership could combat money-laundering schemes in the U.S. The second video features Daria Kalenuik, Executive Director of the Anti-Corruption Action Center in Ukraine, George “Ren” McEachern, Managing Director at Exiger’s Silver Spring office, Thomas Mayne, freelance researcher, and Casey Michel, investigative reporter with ThinkProgress.


Delaware Endorses Bill to Tackle Anonymous Companies

Move Comes as Lawmakers Drop Important Anti-Money Laundering Section from Legislation

WASHINGTON, D.C. — Delaware’s top government official overseeing company formation in the state endorsed a bipartisan federal proposal to require companies to disclose their true owners at the time of formation in new a new letter to Congress.  The correspondence from the Delaware Secretary of State comes as the U.S. House of Representatives Committee on Financial Services risks derailing a bipartisan effort to counter illicit finance by dropping the key transparency proposal from a package of reforms that will be voted upon in committee this week.

Without the key beneficial ownership disclosure provisions, several portions of the remaining bill would weaken safeguards against terror finance and criminal money laundering, according to the Financial Accountability and Corporate Transparency (FACT) Coalition, a non-partisan alliance of more than 100 state, national, and international organizations promoting policies to combat the harmful impacts of corrupt financial practices.

Gary Kalman, the executive director of the FACT Coalition, issued the following statement:

“We greatly appreciate Delaware Secretary of State Jeffrey Bullock writing in favor of the collection of beneficial ownership information for businesses formed in the United States.  As someone with extensive knowledge and background in the corporate formation process, it is particularly meaningful that he called a bipartisan proposal in the House ‘a workable solution to curb money laundering and terrorist financing…’

“The support comes at a critical time, as the House Financial Services Committee has been debating a bipartisan bill that centers on the collection of this information.

“Unfortunately, a new draft of the bill proposes to eliminate the provisions around beneficial ownership transparency — thereby breaking apart the consensus that existed around previous drafts of the proposed legislation.

“As police and prosecutors have said, several of the sections in the remaining bill would actually weaken our nation’s safeguards against rogue states and the financing of crime.

“We urge the committee to reconsider and reincorporate the beneficial ownership provisions.”

###

Journalist Contact:

Clark Gascoigne
Deputy Director, The FACT Coalition
+1 202 810-1334
cgascoigne@nullthefactcoalition.org

Notes to Editors:

  • Click here for an online version of this release.
  • The full letter from the Delaware Secretary of State can be downloaded here.
  • Click here to download an updated draft of the Counter Terror and Illicit Finance Act, dated June 11, 2018 (the old November 14, 2017 draft is available here). The new version of the bill is scheduled to be voted on in the House Financial Services Committee on Thursday, June 14, 2018.
  • The latest draft of the bill is now opposed by the Fraternal Order of Police and the National District Attorneys Association, among other law enforcement officials.

Crack Down on U.K.’s Offshore Territories Increases Pressure on U.S. to End Anonymous Companies

WASHINGTON, D.C. — Lawmakers in the United Kingdom voted Tuesday to require their offshore territories to establish systems by 2020 mandating companies to disclose their true owners at the time of formation.  The new rules, which will bring transparency to companies formed in notorious secrecy jurisdictions such as the Cayman Islands, Bermuda, and the British Virgin Islands, were welcomed by the Financial Accountability and Corporate Transparency (FACT) Coalition, a non-partisan alliance of more than 100 state, national, and international organizations in the U.S. promoting policies to combat the harmful impacts of corrupt financial practices.

The FACT Coalition noted that the move increases pressure on U.S. policymakers to take action against anonymous shell companies registered domestically.

Gary Kalman, the executive director of the FACT Coalition, issued the following statement:

“Today, the United Kingdom took important steps to crack down on a number of the world’s most infamous places to hide illicit cash.  The Cayman Islands, Bermuda, British Virgin Islands and others will soon put an end to the abuse of anonymous companies.

“Corrupt leaders and individuals will no longer be able to hide behind the veil of corporate secrecy available to them in the U.K.’s offshore territories.

“That money will have to find a new place if the bad actors are to stay ahead of law enforcement and national security officials.

“It is not a stretch to expect that a flood of illicit cash is about to pour into the U.S. financial system.  It’s not the kind of investment we should welcome.

“The U.S. is already one of the top places in the world for drug cartels, human trafficking operations, rogue nations and corrupt leaders to hide and hold the proceeds of their crimes.  The 2018 Financial Secrecy Index ranked the U.S. second only to Switzerland.  As the rest of the world moves toward transparency and accountability, we may well become the top haven for dirty money.

“Congress should move immediately to protect the integrity of our financial system.  They should pass bipartisan legislation to end anonymous companies.”

###

Journalist Contact:

Clark Gascoigne
Deputy Director, The FACT Coalition
+1 202 810-1334
cgascoigne@nullthefactcoalition.org

Notes to Editors:

  • Click here for a link to this release on our website.

The Panama Papers — Two Years Later: Will the U.S. Finally Tackle Anonymous Shell Companies?

The Panama Papers — Two Years Later: Will the U.S. Finally Tackle Anonymous Shell Companies?

REGISTER

Click Here

DATE AND TIME

Thu, April 19, 2018
4:30 PM – 6:00 PM EDT

LOCATION

OpenGov Hub
1110 Vermont Avenue NW, #500
Washington, DC 20005

DESCRIPTION

Anonymous shell companies make it extremely easy for corrupt and criminal actors both here and around the world, not to mention tax evaders, to hide and launder illicit wealth. From the Panama Papers to the Magnitsky scandal, the world is hearing more and more about this problem. As April marks the two-year anniversary of the release of the Panama Papers, it is important to reflect on what progress has been made to date in the United States to tackle anonymous ownership.

The event will include the launch of a new report by Transparency International, “G20 Leaders or Laggards”, which reviews G20 promises on tackling anonymous companies and will shed light on the status of beneficial ownership transparency in the United States compared to other jurisdictions.

The forum will bring together three speakers who will speak to why tackling anonymous companies is one of the key anti-corruption (and pro-democracy) challenges of our time, the limited progress made to-date in tackling the problem, and the outlook for potential reforms over the next several months.

Snacks and drinks will be provided.


Questions Guiding the Discussion

Why should Americans care about anonymous companies? What have we learned in the last two years that we didn’t already know about the cost and impact of anonymous ownership? Compared to other G20 countries, how well is the U.S. doing to tackle illicit flows and corruption that hide behind anonymously owned companies and trusts? What are some of the success stories in the U.S. or globally? What are the most important steps forward that the U.S. should take to tackle the problem? What is the likelihood of U.S. legislative and administrative action in this area?

Panelists
  • Maggie Murphy, Senior Global Advocacy Manager at Transparency International
  • Gary Kalman, Executive Director of the FACT Coalition
  • Eric LeCompte, Executive Director of Jubilee USA
Moderator
  • Charles Davidson, Kleptocracy Initiative

Speaker Bios

Charles Davidson is Executive Director of the Kleptocracy Initiative at Hudson Institute, and Publisher of The American Interest since its founding in 2005. Davidson co-founded the think tank Global Financial Integrity in 2006, and was instrumental in founding the FACT Coalition. He is Executive Producer of We’re Not Broke, a documentary about corporate tax avoidance/evasion, that premiered at the Sundance Film Festival in January 2012. Until recently he was a vice-chair of the Board of Trustees at Freedom House. Prior to 2005, Davidson spent his career in the information technology industry in various technical and executive positions, segueing into venture capital in 1996. He is a graduate of Bowdoin College (1981) and Duke University’s Fuqua School of Business (1988).

Maggie Murphy is Senior Global Advocacy Manager at Transparency International (TI), the global movement against corruption. She leads the organisation’s advocacy efforts targeting international bodies such as the G20, G8 and OECD with a focus on closing loopholes in the international financial system to stem the flow of criminal and corrupt money and is a designated TI spokesperson. Prior to Joining Transparency International, she worked in human rights advocacy roles for Minority Rights Group International and Amnesty International, amongst others on issues ranging from ending torture to increasing political participation of marginalised groups. Maggie has worked in the UK, Germany, the Netherlands, Rwanda, and Senegal. She holds a BA from Oxford University and an MSc from the London School of Economics.

Gary Kalman is a founding member and executive director of the FACT Coalition in Washington, DC. Gary is also a founding member of Americans for Financial Reform, a coalition of more than 200 organizations, which, in the aftermath of the 2008 financial crisis, led the successful fight for the Dodd-Frank Wall Street Reform bill. Gary is the recipient of a New Executives Fund Award from the Open Society Institute. He has testified before Congress on several occasions on tax and budget issues and he and his work have appeared in The New York Times, The Washington Post, USA Today, Fox News, MSNBC and elsewhere.

For more than 20 years, Eric LeCompte has led religious groups to win policies that alleviate poverty, address global conflict and promote human rights.‎ He is the Executive Director of Jubilee USA Network, a development coalition of more than 650 religious groups and US organizations. LeCompte serves on boards of faith-based, development and financial transparency organizations. He is a member of the executive board of the Financial Accountability and Corporate Transparency (FACT) Coalition. His views on religion, politics and economic issues regularly appear in media outlets including the Wall Street Journal, the Washington Post, the Associated Press, Bloomberg, McClatchy News Service, National Public Radio, Agence-France Presse, Market Place, CNN Money, the Financial Times and The Hill.

~~~~~

Please RSVP HERE.

 


As Opioid Crisis Evolves, Anonymous Company Loopholes Remain a Gap

By Nathan Proctor

This article is cross-posted from Fair Share’s website.

What’s Changed Since Our 2016 Report, “Anonymity Overdose,” and What Hasn’t

Our 2016 report, Anonymity Overdose, charted the connection between the opioid epidemic and the problem of anonymous shell companies.

As Congress ramps up funding for the national response to this crisis (though not at the levels some had hoped for), we wanted to provide an update on how the opioid trafficking operations are changing, and why ending anonymous shell companies is still an incredibly low-cost, bipartisan approach to help take on the opioid crisis.

Our findings from 2016

Our report, featured on CBS MoneyWatch, the Hill, the New York Times, the Wall Street Journal and elsewhere, made the case that ineffective money laundering controls make it easier and cheaper to traffic opioids.

We recommended closing loopholes that allow companies to be formed with no record of who owns them, which would help law enforcement seize money from drug trafficking operations, and trace street level crime up to kingpins.

The report featured 10 case studies of how anonymous shell companies — companies formed with no record of who owns them — were used as money laundering instruments or front operations for opioid traffickers, sometimes as part of larger more diverse criminal operations.

In the case of Kingsley Iyare Osemwengie, who used sold oxycodone across many states through prostitutes and couriers, profits were shifted through an anonymous shell company aptly named High-Profit Investments LLC.

In an example of how anonymous companies can be used to front as legitimate businesses, Owen Hanson allegedly lead a violent international narcotics trafficking and gambling ring based in San Diego, California. He used a U.S. based anonymous shell company called Big Dog Memorabilia Inc., to disguise his activities.

From prescription abuse to more powerful street drugs 

Opioids are highly addictive, and users develop tolerances which can push them into higher and higher dosages to get the same “high.” An increasing body of research is showing that prescription drug abuse can lead people to move to more powerful — and much cheaper — street drugs like heroin.

The National Institute on Drug Abuse, reports that “[n]early half of young people who inject heroin surveyed in three recent studies reported abusing prescription opioids before starting to use heroin.”

While a prescription drug like oxycodone might have a street value of $80 per pill, in most states, a dose of heroin costs less than a pack of cigarettes.

The rise of fentanyl, carfentanil and other synthetic opioids

Heroin isn’t the end of this chain. Synthetic opioids, which have dramatically increased in availability and popularity, can be far more powerful than heroin — and therefore easier to move without detection.

Fentanyl, a synthetic opioid which can be 100 times more powerful than heroin, was detected in more than 50% of opioid overdose deaths in 2016, according to the CDC. The New York Times estimated that fentanyl deaths were up 540% over the last 3 years. Some synthetics, like carfentanil, are so potent that first responders risk overdose by physical contact with an addicts clothing. Carfentanil has been used as a chemical weapon.

Fentanyl poses new challenges to law enforcement, in addition to first responders and healthcare workers. New production techniques have spawned new distributions systems, which our law enforcement officials are working to confront.

Fentanyl by mail

Because fentanyl and other synthetics are so much stronger, they take up a lot less space and can be much more easily hidden in other products. For example, it can be hidden in fake “Silica Gel” packets and included with another product and was uncovered by the Globe and Mail. And because these drugs are synthetics, they can be produced in factories without leaving much of a supply chain to tip off investigators.

Earlier this year, the Senate Subcommittee on Investigations did a study of how easy it was to order fentanyl through the mail — essentially googling “buy fentanyl online” and then tracking the most responsive vendors. Researchers logged 500 online transactions with a street value of approximately $766 million. Those examples were on the standard web, there are additional portals to buy these products on the dark web, where traffic is much harder to track and trace.

The result of pressure on China by the U.S. and other countries to take more action against synthetic opioids by expanding their controlled substance bans has shown some progress, but law enforcement is hoping for more action.

Last year China banned several synthetics, including carfentanil. There are indications that this has cut down on the number of sellers. Yet, while reduced, there are still open drug markets on Chinese websites. Compared to the U.S., China has loose regulation of chemical companies and fewer requirements for transparency. And while last year the U.S. Department of Justice announced the first-ever indictments of Chinese nationals accused of shipping large quantities of fentanyl through the mail to international customers, China has been reluctant to take their own enforcement actions.

Anonymous companies help ship synthetic opioids

As drug enforcement agencies catch up to some of the new methods, anonymous companies remain a gap that aids the illegal trafficking of opioids. For example, agents in Southern California intercepted a commercial pill press being sent to “Beyond Your Dreams” a shell company set up in California. The shipper was Capsulcn International, a company set up in abroad. Both are, as far as I can tell, anonymous companies.

While there is more direct to customer traffic through the mail, many order synthetic opioids to distribute. One of the reasons that pill presses are an item to watch for port authorities is that a small amount of fentanyl can be pressed with other filler ingredients and made to look like oxycodone tablets, which have a greater street value. These fake prescription drugs can have very unpredictable strength and pose significant overdose risks to would-be users.

Cartels are placing their orders, too

Similar to methamphetamine, the illicit manufacture and distribution of fentanyl is lucrative for the Mexican cartels. They manufacture it in their own Mexican-based labs using precursor chemicals imported from China. Fentanyl’s potency allows the cartels to deal in smaller shipments. This boosts the efficiency of its operations and results in enormous criminal proceeds.

Money laundering reforms would aid targeted new distributors

For tackling these emerging dealers, money laundering tools are critical. As was reported in “Anonymity Overdose,” following the money up from a street deal to the supplier is a time-tested investigative tool for law enforcement. Anonymous shell companies make this work all-the-more difficult by providing essentially a getaway car for drug profits.

With no record of who owns them, anonymous companies are an ideal vehicle for hiding drug proceeds. A string of shell companies can launder the money back into a usable form, which is often difficult or impossible for law enforcement to trace.

Mexican drug lords and traffickers based in China, armed with new distribution techniques frequently avail themselves of offshore shell companies. The fact that we continue to provide free harbor for illicit money increases the profit margins.

As the opioid epidemic evolves and finds new cracks in the armor, getting rid of anonymous companies is one straight-forward move that would get rid of one those cracks.

Nathan Proctor is a National Campaign Director with Fair Share, and the State Director of Massachusetts Fair Share. 


Why Does the American Bar Association Oppose Beneficial Ownership Transparency Reform?

By Matthew Stephenson

A version of this article is cross-posted from The Global Anticorruption Blog.

Earlier this month, the U.S. Senate Judiciary Committee held a hearing on “Beneficial Ownership: Fighting Illicit International Financial Networks Through Transparency.” The main focus of the hearing was a pending bill, the True Incorporation for Transparency for Law Enforcement Act (TITLE Act). That bill’s major provisions do two main things:

  • First, subject to certain limited exceptions, the Act would require that every applicant wishing to form a corporation or limited liability company (LLC) in a U.S. State must provide that State with information on the true or “beneficial” owners of the company—that is, the live human beings who actually exercise control over, and/or receive substantial economic benefits from, these entities—and to keep this information updated. This information could then be requested by a law enforcement or other government agency, or by a financial institution conducting due diligence on a customer. Those applicants who don’t have a U.S. passport or driver’s license who want to form a corporation or LLC would have to apply through a U.S.-based “formation agent”; this agent would be responsible for verifying, maintaining, and updating information on the identity of the legal entity’s beneficial owners.
  • Second, the bill would also subject these “formation agents” to certain anti-money laundering (AML) rules applicable to financial institutions, including the requirements for establishing AML programs and filing suspicious activity reports (SARs) with the Treasury Department. However, the TITLE Act expressly exempts attorneys and law firms from this provision—provided that the attorney or law firm uses a separate formation agent in the U.S. when helping a client form a corporation or LLC. (The idea, as I understand it, is that the bill would avoid putting attorneys in the position of potentially having to file SARs on their own clients—but in order to avail themselves of this exemption, an attorney helping a client form a corporation would have to retain a separate formation agent, and it would be this latter agent that would be subject to the AML rules. More on this in a moment.)

Compared to the more aggressive beneficial ownership transparency reforms touted by anticorruption/AML advocates, and adopted in some other countries, the proposed U.S. legislation is fairly mild—but it is still, as prior commentators on this blog have emphasized (here and here), a welcome step in the right direction. After all, while the U.S. record on fighting global corruption and international money laundering is good in some respects (Foreign Corrupt Practices Act enforcement and the Kleptocracy Asset Recovery Initiative come to mind), when it comes to addressing the facilitators of corruption, such as corporate secrecy, the U.S. is a laggard (as illustrated by poor U.S. score on the Tax Justice Network’s 2018 “Financial Secrecy Index,” released last month). So it’s indeed encouraging that the TITLE Act, and its counterpart in the U.S House of Representatives (the less-cleverly-named “Counter Terrorism and Illicit Finance Act”) have received both bipartisan support and the endorsement of a wide range of interest groups—including not just anti-corruption, AML, and tax justice advocacy groups, but also representatives of law enforcement, the finance industry and other business interests (here and here). Many are cautiously optimistic that some version of these bills might actually become law this year.

But some opposition remains. The sources of that opposition are, in some cases, predictable: the Chamber of Commerce, for example, opposes these reforms, as does FreedomWorks, the lobbying group sponsored by the libertarian billionaire Koch brothers. One of the major opponents of the legislation, though, was more surprising, at least to me: the American Bar Association (ABA), which represents the U.S. legal profession. The ABA has come out strongly against this legislation, sending letters to the responsible committees in both the House and Senate expressing strong opposition to even these relatively mild reforms.

What’s the explanation for this uncompromising opposition? Do the objections make sense on the merits? How did the ABA decide to take such a strong stand, despite the fact that I’m sure many ABA members support greater beneficial ownership transparency? I don’t know the answers to any of these questions yet, and I may try to do a few more posts over the next several weeks as I try to work through these issues. But for now, let me offer some preliminary thoughts:

First, on the substance of the ABA’s objections as expressed in the two letters, I have to confess they seemed a bit thin and poorly reasoned:

  • The ABA places great emphasis on the costs of compliance—formation agents, including lawyers (unless they employ a separate formation agent), will now have to collect and verify beneficial ownership information on their clients. This is, of course, a generic objection to just about any regulation, and it’s hard to evaluate in the abstract, without more concrete evidence on the magnitude of the costs (which the ABA’s letters do not supply). But on the surface, this didn’t seem like a very strong argument, for three reasons: First, as noted above, other private sector groups affected by the legislation, including the financial sector (not just big banks but also credit unions), don’t seem perturbed by the allegedly crippling compliance costs. Second, in the grand scheme of things, the nature of the information required—things like a verified photo ID and address for the company’s beneficial owners—doesn’t seem that onerous or hard to verify, as long as the client is in fact legitimate. Third, wouldn’t most competent lawyers want to know (and verify) who their client is? I’ve never practiced law (I only teach), so maybe I’m naïve about this, but it seems like the kind of information the TITLE Act would require is the kind of material most lawyers would ask for anyway in most cases.
  • The ABA’s other major objection is that the bill could impinge on lawyer-client confidentiality. So far as I can tell, this objection carries essentially zero weight with respect to the part of the bill that requires applicants, or their formation agents, to provide beneficial ownership information to the government. Of course the government can require that a private party disclose certain information—in this case, who he or she is, or is working for—in order to receive a government privilege, and the fact that this information might be transmitted to and through an attorney does not somehow convert the information into a client secret. (For example, an applicant for permanent resident status has to provide information to the government about her age, country of origin, employment, assets, etc. Many applicants retain an immigration attorney to fill out all the paperwork, but this does not make it somehow inappropriate for the government to require that the attorney file, on her client’s behalf, all of this information as part of the application.)
  • There’s something more to the idea that subjecting lawyers (as “formation agents”) to the other requirements of U.S. AML law, including the obligation to file SARs, would be a serious infringement on traditional attorney-client confidentiality. After all, a lawyer representing a client on numerous matters might have a lot of information on that client—much more than a typical financial institution or corporate service provider. And even though lawyers have an ethical obligation not to assist a client in engaging in criminal activity, if lawyers had to file SARs on their clients, they could find themselves in a very awkward, perhaps untenable position: A lawyer might not know, or even think, that a client is actually engaging in money laundering, but the lawyer’s confidential information on the client’s business still provides “red flags” sufficient to trigger the obligation to file an SAR report.
  • But of course, as noted above, even though the TITLE Act subjects other “formation agents” to U.S. AML rules, it explicitly exempts lawyers and law firms from this provision, so long as lawyers use some other formation agent when helping a client form a corporation or LLC. I’m no expert, but this strikes me as quite a sensible compromise. On the one hand, if a lawyer is only helping a client form a corporation, and not representing the client in any other matter that might give the lawyer additional confidential information, the lawyer can act as the formation agent but must comply with U.S. AML rules, just like any other formation agent. On the other hand, if a lawyer is representing a client more generally, and that client wants to form a corporation, the lawyer can avail herself of the exemption, outsourcing the formation responsibilities to a different entity (perhaps another lawyer, perhaps a different sort of formation agent), and thereby avoiding the obligation to file SARs on the client or do anything else that might be problematic from a client confidentiality perspective. (Recall again that the only information that the formation agent would need to get from the client is information that the client is legally obligated to provide to the government anyway, as a precondition for forming the corporation.)

So, the official explanations for objecting to the bill don’t seem to make much sense—at least that’s my preliminary judgment, though I may well be wrong and would welcome correction.

What, then, explains the ABA’s surprisingly strong objections to these bills? I suppose the simplest explanation, and also the most cynical, would be financial self-interest—not of the bar as a whole, but of two overlapping subsets of the profession: (1) small firms or solo practitioners who provide corporate registration services (with no, or few, questions asked), who would indeed find it more difficult to operate if they had to perform any actual scrutiny on their clients; (2) larger firms who represent very wealthy, very shady characters, and help these clients set up complex financial and legal structures to shield their assets and identities—perhaps very occasionally for some arguably legitimate purpose, but more often for some other, usually unstated but fairly obvious illegitimate reason. If you don’t believe that this is part of what’s going on, check on the exposé that Global Witness did a couple of years back, in which they secretly recorded fancy lawyers at a dozen white-shoe firms enthusiastically discussing the best ways that a prospective client—who they should have known from the first description was a corrupt foreign official—hide his assets in the U.S. While most of these lawyers stayed on the right side of the formal ethics rules, not all of them did—and even in those cases where no rules were broken, the casual, matter-of-fact tone of the conversations (genuinely shocking, at least to me) strongly suggests that such clients—and such client services—are quite common even at the most reputable firms.

Of course, not all lawyers have a vested financial interest in corporate secrecy, and indeed many lawyers are passionate advocates for greater transparency. The ABA has excellent, hardworking committees on topics like global anti-corruptioninternational anti-corruptionAML, and human rights, as well as many members with a strong interest in strengthening law enforcement, as well as others who, like their financial industry clients, would support measures that facilitate more effective due diligence, if only out of self-interest. How, then, did the ABA, which represents such an internally heterogeneous group, come to take such a one-sided position on this issue? This question is all the more puzzling given that the arguments grounded in the interests of the profession as a whole—such as the attorney-client confidentiality argument—seem so flimsy. I haven’t yet been able to get to the bottom of this. The ABA ordinarily sets policy and takes other important decisions through its House of Delegates, but I haven’t been able to track down any record of a formal House of Delegates vote regarding the ABA’s opposition to beneficial ownership transparency. Perhaps this is being driven by the ABA President, or by a small group of specially-interested senior ABA officials, without broader consultation and input from the larger membership? I’m still trying to figure this out, and if anyone out there in reader-land has any insight into how the ABA came to formulate its position on this issue, I would be most appreciative.

To be continued…

Matthew Stephenson is a Professor of Law at Harvard Law School.