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U.S. Indictment Charges Professionals and U.S. Taxpayer for Tax and Related Offenses Arising From Panama Papers

December 5, 2018 by Bruce Zagaris Leave a Comment

On December 4, 2018, U.S. law enforcement announced the unsealing an indictment in the U.S. District Court for the Southern District of New York, charging four individuals with wire fraud, tax fraud, money laundering, and other crimes for their alleged roles in a decades-long criminal scheme perpetrated by Mossack Fonseca & Co. (“Mossack Fonseca”), a Panamanian-based international law firm, and related entities.

The 11-count indictment charges Ramses Owens, 50, a Panamanian citizen; Dirk Brauer, 54, a German citizen; Richard Gaffey, a U.S. citizen, of Medfield, Massachusetts; and Harald Joachim Von Der Goltz, 81, a German citizen. Owens, Gaffey and Von Der Goltz are charged with one count of conspiracy to commit tax evasion, one count of wire fraud, and one count of money laundering conspiracy. Owens and Brauer are charged with one count of conspiracy to defraud the U.S. and one count of conspiracy to commit wire fraud. Gaffey and Von Der Goltz are also charged with four counts of willful failure to file an FBAR. In addition, Von Der Goltz is charged with two counts of making false statements.

On November 15, 2018, French authorities arrested Brauer, who worked as an investment manager for Mossfon Asset Management, S.A., an asset management company closely affiliated with Mossack Fonseca, in Paris, France. On December 3, 2018, British authorities arrested Von Der Goltz, a former U.S. resident and taxpayer in London, England. On December 4, U.S. authorities arrested Gaffey, a U.S.-based accountant in Boston, Massachusetts. Owens, a Panamanian attorney who worked for Mossack Fonseca, remains at large.

The indictment alleges that, from at least in or about 2000 through in or about 2017, Owens and Brauer conspired with others to help U.S. taxpayer clients of Mossack Fonseca hide assets and investments, and the income generated by those assets and investments, from the IRS through fraudulent, deceitful and dishonest means. Owens and Brauer allegedly worked to establish and manage opaque offshore trusts and undeclared bank accounts on behalf of U.S. taxpayers who were clients of Mossack Fonseca. Owens and Brauer allegedly marketed, created, and serviced sham foundations and shell companies formed under the laws of countries, such as Panama, Hong Kong, and the British Virgin Islands, to conceal from the IRS and others the ownership by U.S. taxpayers of accounts established at overseas banks, as well as the income generated in those accounts. Typically the sham foundations “owned” the shell companies that nominally held the undeclared assets on behalf of the U.S. taxpayer clients of Mossack Fonseca.

In exchange for additional fees, Owens and Brauer allegedly helped clients who had bought the sham foundations and related shell companies by preparing corporate meeting minutes, resolutions, mail forwarding, and signature services. Owens and Brauder are also alleged to have intentionally established the bank accounts in jurisdictions with strict bank secrecy laws, thereby impeding the ability of the U.S. to obtain bank records for the accounts. Additionally, Owens and Brauer allegedly instructed U.S. taxpayer clients of Mossack Fonseca about how to repatriate funds to the U.S. from their offshore bank accounts in a manner designed to keep the undeclared bank accounts concealed. Among other things, Owens and Brauer instructed clients to use debit cards and fictitious sales to repatriate their funds covertly.

Von Der Goltz was allegedly one of Mossack Fonseca’s U.S. taxpayer clients. Von Der Goltz was a U.S. resident and was subject to U.S. tax laws, requiring him to report and pay income tax on worldwide income, including income and capital gains generated in domestic and foreign bank accounts. As a U.S. taxpayer, Von Der Goltz was required to file a Report of Foreign Bank and Financial Accounts (FBAR). Von Der Goltz allegedly evaded his tax reporting obligations by establishing a series of shell companies and bank accounts, and hiding his beneficial ownership of the shell companies and bank accounts from the IRS. These shell companies and bank accounts allegedly made investments worth tens of millions of dollars. Owens and Gaffey, a partner at a U.S.-based accounting firm, helped Van Der Goltz in this scheme. Van Der Goltz, Gaffey, and Owens allegedly falsely claimed that Von Der Goltz’s elderly mother was the sole beneficial owner of the shell companies and bank accounts at issue because, at all relevant times, she was a Guatemalan citizen and resident, and, unlike Von Der Goltz, was not a U.S. taxpayer.

The indictment alleges Gaffey, besides helping Von Der Goltz evade U.S. income taxes and reporting requirements, also worked closely with Owens to help another U.S. taxpayer client (Client-1) of Mossack Fonseca defraud the IRS. Client-1 allegedly maintained a series of offshore bank accounts, which Mossack Fonseca helped Client-1 conceal from the IRS for years. The indictment also alleges that, on the advice of Owens and Gaffey, Client-1 covertly repatriated approximately $3 million of Client-1’s offshore money to the U.S. by falsely stating on Client-1’s federal tax return that the money represented proceeds from the sale of a company. After Client-1 repatriated approximately $3 million in this way, approximately $1 million still remained in Client-1’s offshore account, the existence of which remained hidden from the IRS.

The indictment illustrates the trend by U.S. and law enforcement around the world to investigate and prosecute law firms, asset managers, accountants, and other enablers for their key roles in the global financial system. Assistant Attorney General Benczkowski said “the charges…demonstrate our commitment to prosecute professionals who facilitate financial crime across international borders and the tax cheats who utilize their services.” IRS-Criminal Investigations Chief Don Fort said the indictments send a message that “more investigations are on the way.”

With respect to prosecuting tax enablers, on July 2, 2018 the heads of tax crime and senior tax officials of the U.S., U.K., Canada, the Netherlands, and Australia announced an alliance on tax enforcement cooperation. At their first meeting they agreed to develop tactical plans and identify opportunities to pursue enablers of international tax crime. This new indictment shows a tangible result.

The indictment also is the latest of many indictments brought by tax authorities and prosecutors arising out of the publication on April 3, 2016 by the International Consortium of Investigative Journalists (ICIJ) of the Panama Papers investigation. As of December 1, 2016, governments in more than 70 countries have started over 150 investigations, inquiries, audits and probes into the affairs of thousands of people and corporations linked to Panama Papers.

U.S. Treasury Expands GTO to 12 Metropolitan Areas and Lowers Reporting Threshold to $300,000

November 20, 2018 by Bruce Zagaris Leave a Comment

On November 15, 2018, the U.S. Department of Treasury Financial Crimes Enforcement Network (FinCEN) announced the issuance of revised Geographic Targeting Orders (GTOs) that require U.S. title insurance companies to identify the natural persons behind shell companies used in all-cash purchases of residential real estate. The purchase amount threshold, which previously varied by city, is now set at $300,000 for each covered metropolitan area. FinCEN is also requiring that covered purchases using virtual currencies be reported.

Prior GTOs resulted in valuable data on the purchase of residential real estate by persons implicated, or allegedly involved, in various illicit enterprises including foreign corruption, organized crime,fraud, narcotics trafficking, and other violations. Reissuing the GTOs will further assist in tracking illicit funds and other criminal or illicit activity, as well as inform FinCEN’s future regulatory efforts in this sector.

The latest GTOs cover certain counties within the following major U.S. metropolitan areas: Boston; Chicago; Dallas-Fort Worth; Honolulu;Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle.

FinCEN also realized Frequently Asked Questions. The FAQs explain that one of the four criteria that triggers a Covered Transaction, is that “(s)uch purchase is made, at least in part,using currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, or a money order in any form, a funds transfer, or virtual currency.” Accordingly, payment of at least part of the purchase price using one of these methods, such as virtual currency, a wire transfer, a cashier’s check (sometimes referred to as a “bank check,” “official check,” or “treasurer’s check”), a personal check, a business check, or a certified check, triggers a Covered Transaction, assuming the other criteria to trigger a GTO are met: “residential real property”; foreign beneficial owner,which means each individual who,directly or indirectly, owns 25% or more of the equity interests of the Purchaser; and a Covered Business’s “agents” refers to people or entities that are authorized by the Covered Business, usually through a contractual relationship, to act on its behalf to provide title insurance underwritten by the Covered Business (or its subsidiaries).

The U.K. already has initiated a New Beneficial Ownership Register for UK Properties owned by Overseas Companies and other Legal Entities that will go live in 2021. The British Columbia government has released regulations to create a new condo and strata assignment register, in part in response to the significant number of foreign purchases of residences, some of which appear to be connected to proceeds of crime. With the international developments and the continuing extension of the GTOs by FinCEN, pressure is building for the GTOs to become permanent.

OECD and Argentina Establish Latin America Academy for Tax and Financial Crime Investigation

August 7, 2018 by Bruce Zagaris Leave a Comment

On July 22, 2018, OECD Secretary-General Angel Gurria and Argentina’s Minister of Treasury Nicolás Dujovne presided over a Memorandum of Understanding (MOU) to establish a center of the OECD Academy for Tax and Financial Crime Investigation in Buenos Aires, Argentina.

The signing occurred in the margins of the meeting of the G20 Finance Ministers and Central Bank Governments. The center will be housed in the facilities of Argentina’s Federal Administration of Public Revenues. Argentina’s Commissioner of Public Revenues Leandro Cuccioli and the OECD’s Director of the Centre for Tax Policy and Administration Pascal Saint-Amans signed the MOU.

The Academy will provide intensive capacity-building courses targeting tax crime investigators and other related law enforcement officials, including prosecutors, anti-money laundering and anti-corruption officials, especially from Latin America countries. The courses will aim to support tax crime investigators. It will feature broad-based courses on conducting and managing financial investigations as well as giving courses on specific types of tax and financial crimes, such as those associated with crypto-currencies, money laundering and VAT fraud.

The creation of the OECD Latin America Academy builds on the success of the original centre hosted by the Guardia de Finanza in Ostia, Italy, and a pilot Africa Academy for Tax and Financial Crime Investigation started by the OECD, Kenya, Italy and Germany at the G20 Africa Partnership conference in June 2017. Together, the centers have trained more than 550 financial investigators from over 80 countries.

The first program of the OECD Latin America Academy will occur in late 2018 and will focus on VAT/GST Fraud.

The 2019 Academy schedule for Latin America will include a program, concentrating on Conducting and Managing Financial Investigations. The program will include subject areas such as: bribery and corruption; beneficial ownership and offshore structures; money laundering; investigative techniques; international cooperation; and asset recovery.

With globalization the ways for individuals and entities to evade and avoid tax have expanded significantly. Just as importantly, the international mechanisms to prevent and combat tax evasion and avoidance, such as BEPS and its components, such as Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, Country-by-Country reporting, the different types of exchange of information, the interplay between anti-money laundering, transnational corruption, and tax issues all require initial and ongoing training. The OECD Academies will help train tax officials at different levels. The nature of the training illustrates the increasing convergence between international tax enforcement and other international white collar enforcement. For more discussion of this development, stay tuned for the August issue of the International Enforcement Law Reporter.

CARICOM HEADS ISSUE COMMUNIQUÉ ON SECURITY, MARIJUANA LEGALIZATION AND OTHER ENFORCEMENT INITIATIVES

July 9, 2018 by Bruce Zagaris Leave a Comment

At 39^th meeting of the heads of government of the Caribbean Community in Montego Bay, Jamaica on July 4-6, 2018, several significant actions occurred on international enforcement and security cooperation, as shown by the Communique.

Jamaica signed the CARICOM arrest warrant treaty, which enables Jamaica and CARICOM countries to more easily surrender individuals without need to extradite them.

After receiving an update on current and emerging Crime and Security issues in the region, the Heads mandated the Regional Security Agencies to work closely with the National Security Heads to address the various challenges emphasizing the need to strengthen the network of security head in the region to promote further information and intelligence sharing.

The Heads underscored the importance of strengthening the use of information and Communications technology in the fight against illicit trafficking in narcotics and firearms, trans-border criminal activities and cyber attacks. They emphasized the importance of working more closely with their international development partners to help the region in this regard.

CARICOM Members were encouraged to urgently update all legal instruments to combat crime and enhance regional security.

The Heads observed with great concern the amendment approved by the UK House of Commons to the Sanctions and Anti-Money Laundering Bill requiring the UK Government to ensure that the British Overseas Territories, but not Crown Dependencies, establish public registers of beneficial ownership information by no later than December 31, 2020.

They expressed solidarity with the territories “adversely affected by this unfair and unilateral action to legislate in areas of domestic policy constitutionally devolved to the territories without the consent of the people. Moreover, the action ran counter to an alternative arrangement to public registers earlier negotiated and agreed with the UK government and put in place at great cost to the overseas territories.”

According to the Heads, this they view as similar to the “unfair, unilateral and punitive extraterritorial measures such as blacklisting and de-risking taken against their own countries financial services sector, also a critical aspect of their economies, despite their best efforts at transparency and compliance.”

The Heads welcomed the report of the Regional Commission on Marijuana, which reviewed information and studies pertaining to marijuana legislation regulating its use and classification, findings related to research conducted on the medicinal use of marijuana as well as the economic and social impact and its implications for the region.

The Heads accepted in principle the need for changes in the classification of the drug which will make it more available for medicinal purposes and research. The acknowledged the region must intensify its lobbying at the international level to facilitate reclassification.

The Communiqué shows that the Caribbean Single Market Economy continues to facilitate streamlined procedure to enforcement cooperation, such as the CARICOM arrest warrant treaty. They continue to try to develop common approaches and policies to transnational criminal threats, such as illicit trafficking in narcotics and firearms, trans-border criminal activities and cyber attacks.

The Heads are also developing common approaches to efforts by extraregional actors to impose tax transparency and money laundering/counter-terrorism financial regulatory and enforcement policies on them. They are especially supportive of the overseas territories because the same policies, e.g., the requirement to have corporate public registers, will undoubtedly be imposed on them, even as they continue losing their financial service markets to other jurisdictions, especially to states in the U.S. which do not even have any private registers and the Trump Administration has not prioritized or pledged to meet international standards in tax transparency or anti-money laundering.

CARICOM has developed a number of regional enforcement and security mechanisms, including CARICOM Implementing Agency for Crime and Security (IMPACS), the Association of Caribbean Commissioners of Police, and subregional enforcement mechanisms, such as the Organization of East Caribbean States (OECS) Regional Security System.

UK Parliament Votes to Crack down On Anonymous Offshore Companies

May 2, 2018 by Zarine Kharazian Leave a Comment

On Tuesday, the British parliament voted to add an amendment to the UK Sanctions and Anti-Money Laundering Bill to require 14 overseas territories, among them the Cayman Islands and the British Virgin Islands, to implement public ownership registers by 2020.

The bipartisan amendment was introduced by the Labour Party’s Margaret Hodge and the Conservative Party’s Andrew Mitchell. The Hodge-Mitchell Amendment is an effort to fight corruption and money laundering in the U.K.’s offshore territories.

The amendment is part of a renewed push at both the E.U. and national levels to increase transparency of beneficial ownership information. On the E.U. level, the recently-adopted 5^th Anti-Money Laundering Directive requires that member states establish registers of beneficial ownership information and make that information accessible shortly after the entry into force of the directive.

Experts have speculated about how member states will transpose the 5^th AMLD into domestic law. With Brexit looming, the U.K. has been particularly subject to such scrutiny. The passage of the Hodge-Mitchell amendment suggests that the U.K. is committed to ensuring cross-border cooperation and harmonization of AML laws with its E.U. counterparts.

Transparency Int’l Critiques G20’s Unmet Promises on Ending Anonymous Companies

May 1, 2018 by Bruce Zagaris Leave a Comment

by Bruce Zagaris

On April 19, 2018, Transparency International issued a report G20 Leaders or Laggards? Review G20 promises on ending anonymous companies.

The TI report discusses how the major cross-border “grand corruption” scandals have tarnished the Group of 20 (G20) countries in recent years. It cites the fact that in 2017 Odebrecht the Brazilian engineering company, was assessed a US$2.6 billion fine for bribery after being charged with paying US$788 million in bribes. In the “Russian Laundromat” scandal, exposed in 2017, a group of individuals in G20 member Russia allegedly established 21 shell companies, which then moved and laundered illegal proceeds out of the country, making more than 26,000 payments to 96 different countries including every G20 country aside from Brazil. Increasingly, anonymous companies hide the identity of the person at the source of the funds either to launder and transfer stolen money, or to operationalize corrupt deals, using companies and offshore accounts to pay bribes or buy influence.

The report makes 5 major findings and then recommendations as follows:

G20 Countries are starting to tackle anonymous company ownership – but progress is slow. Some 3 years after the G20 adopted their High-Level Beneficial Ownership Principles at the Brisbane G20 Summit, the number of countries with weak or average frameworks has dropped from 15 to 11, but still major weaknesses exist across the principles.
The majority of countries still do not know who owns and controls companies in their territories and do not keep current information on them. The 20 Principles encouraged legal entities to require beneficial ownership information when recording information about their shareholders. Legal entities are now expected to understand their ownership and control structure and monitor individuals who have an interest in a company but are presented through nominee shareholders or other legal entities. However, the great majority of countries evaluated still do not require legal entities to maintain beneficial ownership information themselves. Central beneficial ownership registers improve collection of beneficial ownership information and access to law enforcement, supports domestic and international cooperation between authorities and permits them to do their job more quickly. Six assessed countries now have central beneficial ownership registers.
Verification of information is weak across the board. This undermines the ability of competent authorities to investigate suspicious cases, and the ability of banks and businesses to carry out proper due diligence. All 23 countries analyzed now require financial institutions to identify the beneficial ownership of customers. Unfortunately, in high-risk cases, only 8 G20 countries required financial institutions to use independent and reliable sources to verify the beneficial owner of their customers. Finally, no register authority in any G20 or guest country verifies information collection in company registers.
Rhetoric does not always translate into action. Government are frequently aware of the weaknesses in their system. However, in many cases they fail to implement key measures they know will help mitigate those problems.
Gatekeepers such as lawyers, accountants, real estate agents, and trusts and company service providers remain money laundering weak spots.

TI makes the following recommendations:

— Governments should establish a central register of beneficial ownership information and make it publicly available in open data format.

— Governments should resource and establish mechanisms to ensure that at least some verification of beneficial ownership information occurs, such as cross-checking the data against other government and tax databases, or conducting random inspections.

— Financial institutions or DNFBPs should not be permitted to proceed with transactions if the beneficial owner of their customer cannot be identified.

— Governments should undertake national money laundering risk assessments on a regular basis. These should include an analysis of the risks posed by domestic and foreign legal entities and arrangements. Key stakeholders, including obliged entities and civil society organizations should be consulted. The results of the assessment should be published online.

— Governments should consider prohibiting nominee shareholders. If they are permitted, they should be required to disclose their status upon the registration of the company and registered as nominees. Nominees should be licensed and subject to strict anti-money laundering obligations.

— Governments should require the registration of both domestic and foreign trusts operating in their country. Information on all parties to the trust (trustee, settlor and beneficiaries), and the real individuals behind them should be recorded.

The report illustrates how civil society plays an important role in shaping and implementing commitments by governments and international organizations to transparency and anti-corruption. They invest significant resources before the G20 meetings to develop precise commitments and then lobby the governments to support them. Thereafter, civil society continues to monitor the performance of the governments against the commitments and produce reports, exposing gaps. They also work with other organizations, such as the International Consortium for Investigative Journalists (ICIJ). The current issue of the IELR will have a more comprehensive discussion of the TI report.

VIII Summit of the Americas Commitment on anti-Corruption

April 24, 2018 by Bruce Zagaris Leave a Comment

On April 14, 2018, during the VIII Summit of the Americas, the heads of government agreed to the Lima Commitment with respect to “Democratic Governance against Corruption.”

The commitment includes provisions to reinforce democratic governance, including” the strengthening of democratic institutions for the prevention of and fight against corruption in the Hemisphere.” It comes at a time when many of the governments in the hemisphere, such as Honduras, Venezuela, and Brazil are undergoing a crisis of stability largely due to corruption issues.

The commitment has a section on “transparency, access to information, protection of whistleblowers, and human rights, including freedom of expression.” The section commits to increasing national anti-corruption measures or systems and strengthening conditions for the effective participation of civil society, social organizations, academia, the private sector, citizens, and other social actors in monitoring government performance, including the development of prevention mechanisms, channels for reporting possible acts of corruption and facilitating the work of watchdogs including other citizen oversight mechanisms, and incentivizing the adoption of digital means of participation.” One of the initiatives is to promote the establishment of an Inter-American Data Program within the OAS in order to strengthen open information policies and increase the capacity of governments and citizens to prevent and fight corruption.

A section concerns “financing of political organizations and election campaigns.”

A section on the “prevention of corruption in public works and public procurement and contracting.” One element is to request that the Joint Summit Working Group (JSWG), together with other relevant regional and international bodies, develop an infrastructure platform to facilitate the exchange of experiences, training and cooperation programs for project monitoring and development, feasibility and risk analysis studies, transparent bidding procedures, and government procurement.”

A section focuses on “international legal cooperation: the fight against bribery, international corruption, organized crime, and money laundering; and asset recovery.” Among the action agreed is continuing to implement, prior to the IX Summit of the Americas, the applicable recommendations from the specific rounds of the Implementation Review Mechanism of the United Nations Convention against Corruption (UNCAC) as well as the recommendations from the successive rounds of the Mechanism for Follow-Up on the Implementation of the Inter-American Convention against Corruption (MESICIC).

A section focuses on “strengthening of Inter-American Anti-Corruption Mechanisms.” One action item is to identify resources to strengthen its operations with a view to more efficiently address the new challenges that corruption poses in the Hemisphere. The document contains a series of recommendations, such as calling on MESICIC to promote instruments for the exchange and dissemination of best practices, technical capacities, and measures to strengthen legal and institutional frameworks to prevent and combat corruption that will contribute to the implementation of its recommendations.

The final section concerns “follow-up and reports.” The Lima Commitment requests the Joint Summit Work Group (JSWG) to help States with resources and technical capacity-building, so that they can implement the commitments undertaken at the Summit in the area of strengthening democratic governance and anti-corruption efforts. The section calls upon the private sector in general to adopt similar initiatives as those in the “Private Sector Commitment to Transparency” of the American Business Dialogue presented at the III CEO Summit of the America.

The challenges for the stakeholders in the VIII Summit of the Americas will be to garner sufficient resources, implementation, and enforcement mechanisms, so that the lofty commitments can come to fruition. In particular, the Organization of American States, which provided much of the organizational work for the Summits of the Americas, has limited resources. In addition, the JSWG has limited resources and authority to implement the provisions of the commitment. The Summits of the Americas illustrate an effort by governments, the private sector, and civil society to develop government networks. In the VIII Summit of the Americas, the prioritization is on anti-corruption. It is quite appropriate since the prosecutions in Operation Car Wash and especially of heads of government (Dilma Rousseff) and former heads of government (Lula da Silva) have generated an agreement to cooperate in the enforcement of the Oderbrecht case and has triggered investigations and resignations of high-level officials in Ecuador and Peru, as well as a proliferation of prosecutions and civil cases for corruption. There will be a more comprehensive look at the Lima Commitment in the current issue of the IELR journal.

U.S. Senate Holds Hearing on Beneficial Ownership: Fighting Illicit International Financial Networks Through Transparency

February 6, 2018 by Bruce Zagaris Leave a Comment

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.