On February 6, 2018, the Senate Judiciary Committee held a hearing on “Beneficial Ownership: Fighting Illicit International Financial Networks Through Transparency.” The hearing and testimony are available on the Committee’s website. The hearing was the latest in a series of Congressional hearings on the issue of anonymous corporations.
Sen Chuck Grassley (R-Iowa and Chair of the Committee), opened the hearing by expressing his disappointment that no Treasury witness has appeared despite the Committee’s invitation. He underscored that beneficial ownership is a huge problem, as confirmed by the Panama Papers and the Treasury’s 2015 Money Laundering Assessment report. On November 2017, Congress held a hearing on S.1241, the Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017, concerning cross border money laundering.. Bad actors from all over the world have come to the U.S. as their financial safe haven Victor Bout, convicted of arms trafficking, used six shell companies in the U.S. to launder his money.
Kleptocracy is a threat to U.S. national security and that U.S. secrecy contributes to this. The asset forfeiture case, such as the one against Mr. Teodoro Obiang, the son of the President of Equatorial Guinea, illustrates the problem. Obiang agreed to relinquish $30 million in assets in settlement of the suit brought by DOJ.
The problem plays out in the purchase of U.S. real estate, where shell companies are used. Lawyers for kleptocrats are complicit as the Global Witness undercover sting, which was shown on Sixty Minutes, illustrates. Even the former President of the ABA participated.
Sheldon Whitehouse (D-Rhode Island and ranking minority member on the Committee, said the Panama and Paradise Papers show the wide use by criminals of money laundering. The U.S. is a facilitator and target. Fraudsters, kleptocrats, and tax cheats all use shell companies, which are used to own real estate and other assets secretly. It affects and warps the U.S. housing markets. The answer to shell companies is to require private U.S. companies to report and update beneficial ownership information of U.S. entities.
Testifying in support of S. 1454, the True Incorporation Transparency for Law Enforcement (TITLE) Act, the proposed legislation was Panel I – Mr. Kendall Day, Acting Assistant Attorney General and head of the Anti-Money Laundering and Asset Forfeiture Unit, Criminal Division, U.S. Department of Justice, Washington , D.C.
Testifying in support of S. 1454 on Panel 2 were Mr. Gary Kalman, FACT Coalition, Washington , DC; and Mr. Chip Poncy, Financial Integrity Network, Washington, D.C. Poncy provided a ten-point plan to responding to the problem of anonymous companies. He called for a centralized data base with access to U.S. and other law enforcement agencies.
Mr. Brian O’Shea, Senior Director, Center For Capital Markets Competitiveness, U.S. Chamber of Commerce, Washington, DC, testified that S. 1454 does not properly balance privacy and law enforcement requirements. It would subject small and medium businesses to excessive bureaucracy and unnecessary expense.
As Congress continues to hold hearings on entity transparency, two of the main bills are S.1454 and the Corporate Transparency Act (H.R.3089/S.1717). They both have similar definitions of beneficial ownership. Similarly, they both make the information easily available to law enforcement and financial institutions. Both bills make $40 million available to states for transitional costs from the Treasury and Justice Departments’ asset forfeiture funds.
Both bills exempt publicly-traded companies. Similarly, each bill also exempts companies that have a physical presence in the U.S., more than $5 million in annual revenues, and at least 20 employees in the U.S., so that it narrowly targets those shell entities most likely to be abused by money launderers. In the Q & A period, the rationale for the thresholds was discussed.
In the next issue of the IELR, the differences of the bill and the high points of the debate in the hearing will be discussed.