Blog | July 1, 2015

U.S. Congress hears how anonymously owned companies are exploited by terrorists to move dirty money

Last week a Republican-led congressional task force held a hearing to look at how terrorist groups exploit the U.S. banking system. The hearing focused on a problem that Global Witness has been highlighting for years—anonymous company ownership. At the moment it’s all too easy for terrorists, and other criminals, to hide their assets behind complicated webs of companies. 

The task force explored how terrorist groups take advantage of this well-known loophole to set up untraceable companies. This helps them to avoid U.S. efforts to stop terrorist funds from being laundered through American banks.

According to the task force, two of the key takeaways from the hearing are:

1)      “Shell companies are widely used by terrorist and criminal organizations to both disguise and finance their activities”; 

2)      “The U.S. is a preferred destination for illicit actors from around the world to set up companies for the purpose of moving or hiding dirty money.

The task force cited many examples of this problem, including:

  •          Hezbollah to smuggle cigarettes to finance terrorism;
  •          The Iranian government to evade sanctions;
  •          The son of a corrupt dictator to live a lavish lifestyle;
  •         The Russian arms trafficker Viktor Bout to operate his global arms smuggling operation.

Task Force Chairman Michael Fitzpatrick (R-PA) stated, “The United States must do better when defending our financial system and addressing the threats operating within it. The risk is too great to ignore.”

In his testimony, New York District Attorney Cyrus Vance Jr. described how his office frequently hits a brick wall:

"On a near-daily basis we encounter a company or network of companies involved in suspicious activity, but we are unable to glean who is actually controlling and benefiting from those entities, and from their illicit activity. In other words, we can’t identify the criminal. This is not because the entities are incorporated in an offshore tax haven like the Cayman Islands. That country actually collects beneficial ownership information. Often, that entity is incorporated in the United States – and it’s incorporated in the United States precisely because we don’t collect beneficial owner information. In this important way, a prosecutor sitting in the Cayman Islands is better positioned to root out terrorism finance in her own markets than I am in ours."

DA Vance concluded that at the very least companies should be required to disclose information on their ultimate owners when they are incorporated. This would “vastly improve the capacity of American law enforcement to attack terrorism finance, and disrupt terror plots.”

Chip Poncy, a former Treasury Department official, pointed out, “beneficial ownership requirements for legal entities will provide immensely valuable information for law enforcement and other authorities. An abundance of testimony and evidence over the past several years demonstrates that investigations of legal entities implicated in all manner of criminal activity are all too often frustrated by of a lack of meaningful beneficial ownership information.”

Mr. Poncy made a number of recommendations to Congress, including:

1)      Support a proposed rule from the Treasury Department that would require American banks to identify the ultimate owners of all of their clients.

2)      Adopt legislation to require the disclosure of beneficial ownership information. This would also make it easier for banks to verify beneficial ownership information for their clients.

3)      Support an extension of the current requirement placed on banks to carry anti-money laundering checks on their customers to cover real estate agents.

Global Witness welcomes this focus on the national security threat posed by anonymous company ownership and we support these recommendations. The U.S. needs to use all of the tools at its disposal to stop American companies, and banks, from being misused by terrorists, corrupt dictators and other criminals.

What are we waiting for?

 

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