The Investigations Subcommittee of the HSGAC held a hearing today entitled “Failure to Identify Company Owners Impedes Law Enforcement,” which looks at the ease with which anonymous shell companies can be established in states and the national security consequences of this reality, as Sen. Coleman notes in his opening statement:
This lack of transparency not only creates obvious vulnerabilities in our financial system, it also threatens our homeland security. GAO reports that the FBI has 103 open investigations involving financial market manipulation, and most of these cases involve U.S. shell companies. A Department of Justice report revealed that Russian officials used shell companies in Pennsylvania and Delaware to unlawfully divert $15 million in international aid intended to upgrade the safety of former Soviet nuclear power plants.
Schemes like these are not uncommon, but without sufficient company ownership information, it is often difficult for law enforcement to identify and prosecute the criminals behind them. For example, Immigration and Customs Enforcement (ICE) officials reported that over a two year period one Nevada-based corporation received more than 3,700 suspicious wire transfers totaling $81 million. This case has not prosecuted, however, because ICE was unable to identify the corporationâ€™s owners.
Clearly, our failure to identify the owners of U.S. shell companies is a significant deficiency in our anti-money laundering and terrorist financing efforts. And I am concerned that the competition among the states to attract company filing revenue and franchise taxes has in some instances resulted in a race to the bottom.
Sen. Levin’s opening statement suggests a couple of potential approaches to address this legislatively:
FinCEN is considering issuing new regulations requiring company formation agents to establish risk-based anti-money laundering programs which would require careful evaluations of requests for new companies made by high-risk persons. Another approach would be for Congress to set minimum standards, so that no state would be placed at a competitive disadvantage when asking for the name of a companyâ€™s true owners. This nationwide approach would also ensure U.S. compliance with international anti-money laundering standards. Still another approach would be to expand on the work of a few states which already identify some ownership information, and ask the National Conference Committee on Uniform State Laws to strengthen existing model state incorporation laws by including requirements for beneficial ownership information, monetary penalties for false information, and annual information updates.
These proposals seem relatively benign in terms of their impact on the financial system, and seem like a solid starting point for new legislation in the 110th Congress.
You can read other testimony from the hearing at this link.