This summer, as a divided US Congress has grappled with sprawling, controversial issues like health care reform and struggled with gridlock, a quiet drumbeat of bipartisan support for revealing the real owners behind the anonymous shell companies used to facilitate crime, corruption and other ills has been growing behind the scenes.
The ongoing investigation into Russian interference in the 2016 US election has also brought shell companies and money laundering to the fore. Time and again shell companies have been used as vehicles for the corrupt and other criminals to get, move or hide dirty money – and US policy makers are finally catching on.
Just over a month ago, Global Witness wrote about how the Senate and House had introduced bipartisan legislation to end anonymous companies formed in the US. And the bipartisan support keeps growing. Take for example, the House Corporate Transparency Act (H.R. 3089) which now has 5 Republican and 6 Democratic sponsors – a line up which is something of a rarity these days – while the Senate True Incorporation Transparency for Law Enforcement (TITLE) Act (S. 1454), introduced by Senator Whitehouse (D-Rhode Island), has the co-sponsorship of the Republican Chair of the Senate Judiciary Committee, Senator Chuck Grassley (R-Iowa) and its Ranking Member, Senator Dianne Feinstein (D-California).
And just today, a new comprehensive bill tackling anonymous companies, also titled the Corporate Transparency Act (S.1717) been introduced in the Senate, by Senators Ron Wyden (D-Oregon) and Marco Rubio (R-Florida). Introduction of the bill – which is similar in structure to the House Corporate Transparency Act – reflects both Senators ongoing interest in this issue. In the wake of the Panama Papers leak in April 2016, Senator Wyden called the leak a “wake-up call” and in October 2016 publicly called on federal and state regulators to investigate shell company abuse in the US. Senator Rubio has in the past expressed concerns about the use of shell companies and other money laundering strategies by terrorist organizations, drug traffickers and human trafficking networks, and has introduced legislation in the past to help thwart such schemes.
Additionally, a host of other bills and proposals have been introduced that seek to tackle the problems posed by anonymous companies by focusing more narrowly on their use in various sectors – from aircraft to real estate purchases, here’s a look at just how Congress aims to put an end to the abuse of anonymous companies:
Aircraft and Anonymous Companies
Criminals and terrorists can easily own aircraft in the US hiding behind anonymous companies.
Why this matters: Currently all private aircraft seeking to operate in the US must register with the Federal Aviation Administration (FAA). There’s good reason for this: aircraft are well known vehicles used by a wide range of suspicious actors to commit criminal acts and launder suspect funds – both literally and figuratively. However, the current rules include a loophole: if you purchase an aircraft using a shell company whose ownership isn’t disclosed, the only name that shows up on the registration is the company name or a nominee, not the actual owner.
The solution: Last Friday, Congressman Stephen Lynch (D-Massachusetts), Congresswoman Carolyn Maloney (D-New York) and Congressman Peter King (R-New York) introduced The Aircraft Ownership Transparency Act (H.R. 3544) – a bill that would require those seeking to register aircrafts with the FAA through anonymous shell companies to disclose the real owners behind the entities in question.
Defense Spending and Anonymous Companies
Criminals and fraudsters use of anonymous companies is putting US national security at risk.
Why this matters: Global Witness’ report Hidden Menace showed several examples of anonymous companies being used to defraud taxpayers and undermine US national security. For example, a US-Afghan contractor funneled at least US$3.3 million of US taxpayer dollars to notorious Afghan power brokers, who deliberately hid their ownership interests in companies within the contractor’s network to avoid association with the [Afghan] insurgency. These individuals in turn funded the purchase of weapons for the Taliban and insurgents.
The solution: The House Armed Services Committee recently issued a final committee report making recommendations to Congress on what to include in the pending National Defense Authorization Act. Among the provisions was a directive to the Government Accountability Office (GAO) to “conduct a study of Department of Defense processes to determine the identities and cost structures of contractors [and] how anonymous or opaque ownership structures can circumvent these processes…” The study could identify or further make the case for policy solutions that could help tackle anonymous companies, such as requiring corporate bidders for federal contracts to disclose their real owners as part of the government’s procurement process. Assuming the language remains in the final bill, a briefing and report by the GAO should be available as early as February 2018.
Government Property and Anonymous Companies
High security space in the US can be leased to criminals and the corrupt hiding behind anonymous companies.
Why this matters: A recent GAO investigation showed that ownership information for one-third of high-security spaces leased out by the US government could not be identified. When the investigators found that the FBI Seattle field office building is ultimately owned by the former Chief Minister of Sarawak in Malaysia and his family, we weren’t surprised. As we explained to the GAO, a 2013 Global Witness undercover investigation exposed how this family used their political status to buy land and forest concessions for way less than their commercial value. Swaths of the Sarawak rainforest were destroyed as a result of these schemes, as well as various abuses committed against the rightful land owners. By the end of the government’s 20 year lease in 2019, US taxpayers will have paid this family $56 million in rent, according to the government. These findings raise serious questions about the security of such facilities and importantly, about who might be profiting from these government leasing arrangements in the first place.
The solution: In response to the report, Congressman Lynch introduced the Secure Government Buildings from Espionage Act of 2017 (H.R. 2426), which seeks to enhance US national security by requiring bidders for high-security leases to disclose their beneficial ownership information to the federal government at the outset.
Conflicts of Interest and Anonymous Companies
Shady real estate deals between government officials and buyers hiding behind anonymous companies open the door to corruption and conflicts of interest risks.
Why this matters: Since Trump’s presidential nomination, Trump real estate purchases by secretive buyers hiding behind anonymous companies has increased by 66% according to USA Today. This opens the door to corruption and conflicts of interest risks as the public can’t know which foreign governments, companies or individuals may be trying to curry favor with any president or members of his/her administration.
The solution: Congresswoman Maxine Waters (D-CA), Ranking Member of the House Committee on Financial Services, recently introduced the End Secret Holdings and Ethical and Legal Loopholes (SHELLs) Act (H.R. 3295), which would require the President, Vice President and other Executive branch officials and staff to publicly disclose the actual people behind any purchases of their real estate holdings. This bill underscores the importance of transparency in promoting good governance and ethics in government, now more than ever.
Where will all of this lead?
Ultimately, the only way we can ensure that anonymous companies aren’t used to facilitate crime and corruption is to make transparency the new standard for doing business in the US. By passing comprehensive legislation requiring all American companies to disclose their ownership we’ll all finally know who we’re doing business with.
Each new legislative proposal provides another opportunity to tell the story of how these secret companies are enabling corruption, facilitating crime, and undermining peace and security at home and abroad. Moreover, these sector-based solutions are amplifying diverse voices along an urgent path to ending anonymous companies in the US.