Under Increasing Pressure, Shell Companies May Just Crack
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A successful money laundering scheme often features an anonymous shell company that provides the final layer of protection for the criminal. These secretive entities allow launderers to anonymously receive, hold, and send funds. With the spectacular uproar from the media and the financial industry surrounding the anonymity of bitcoin, it is surprising that there is so little attention paid to anonymously held shell companies. But when the topic of shell companies does emerge in the conversation, what do most people think of? The answer is typically a tropical island nation beyond the reach of U.S. authorities. Many would be surprised to learn that shell companies in the U.S. are among the most secretive in the world.
A report by Global Financial Integrity found that in all 50 states more personal information is required to receive a library card than to create a company. For library cards, the applicant must be the ultimate user of the card and provide substantial personal information. By contrast, to form a company in all U.S. states, it is not necessary to provide any information about the beneficial owner of the company.
However, the pressure to close money laundering opportunities through shell companies is growing. Recently a bill combatting the anonymity of shell companies was approved by the House Financial Services Committee and a similar bill was introduced in the Senate. There is hope that these two pieces of legislation will result in a merged version that will become law. This law would require companies to disclose their beneficial owners to FinCEN and keep the information up to date. Support among corporate lobbyists and politicians has historically been weak, but supporters this time around include U.S. Treasury Secretary Steven Mnuchin and the state of Delaware, the largest state for incorporation.
Whether this legislation will become law is still up in the air, but from the AML perspective, it is a clear step in the right direction. The actual impact on money laundering will still be dependent on the degree of enforcement, but less anonymity certainly makes the job easier. And with increasing pressure, shell companies may just crack.