The U.S. Is a Haven for Money Laundering. That Might Be About to Change.

Tucked into the sprawling defense authorization bill are measures to create a corporate ownership registry, which would plug one of America’s glaring gaps.

The phrase “shell company” conjures images of offshore havens such as Panama or the British Virgin Islands, but one of the world’s leading enablers of financial secrecy is actually the United States. In every state, more personal details and proof of identity are required to get a library card than to form a company; the United States is one of the last advanced economies not to require company ownership information that could help crack down on terrorists, drug kingpins, and those evading U.S. sanctions.

That might soon change. Last week, the House approved its version of the sprawling, must-pass $740 million defense authorization bill, which included amendments to require companies to disclose their true owners. If those provisions survive in the final congressional bill—the Senate has its own defense authorization bill—advocates say it would be the most significant anti-corruption measure taken by the United States in decades.

“It’s a foundational reform to the United States [anti-money laundering] system. It would be a powerful tool for domestic law enforcement, whether they are investigating drug cartels, international kleptocrats, or terrorists,” said Nate Sibley, a research fellow with the Hudson Institute’s Kleptocracy Initiative.

Congress has wrangled over legislation to make disclosure of what’s known as “beneficial ownership” mandatory for over a decade. Now, with stand-alone bills securing bipartisan support in both chambers this year, advocates for the measure are increasingly confident it will pass, either in the defense omnibus or on its own. Hundreds of organizations from the FBI to faith groups have lent their support to increased financial transparency over beneficial ownership. After years of strident opposition, the U.S. Chamber of Commerce this year for the first time signaled its support for the creation of a beneficial ownership register.

“This is one of the few bills that has Dow Chemicals and Friends of the Earth on the same side,” said Gary Kalman, the director of the U.S. office of Transparency International. “I think we’ve turned a corner where we’re now at a point where it’s about when, not if, this is going to pass.”

The United States’ lack of financial transparency was brought home this week thanks to a Senate report revealing that Boris and Arkady Rotenberg, two Russian oligarchs close to Russian President Vladimir Putin, evaded sanctions by using shell companies to invest in the United States’ largely unregulated art industry.

“The Senate investigation exposes how America’s adversaries make a mockery of U.S. sanctions by exploiting shell companies and art market secrecy. Given the timing, and the fact that the NDAA amendment would address both of these vulnerabilities, it would be deeply disappointing if Congress missed yet another opportunity to act,” Sibley said.

And the United States really is a global laggard when it comes to financial transparency—and not just in the U.S. offshore jurisdictions already included in the European Union’s money laundering blacklist. The United Kingdom has a beneficial ownership register, while an EU anti-money-laundering directive requires all member states to set up their own centralized registers.

“The U.S. is supposed to be the leader in fighting corruption,” said Debra LaPrevotte, a former supervisory special agent with the FBI’s International Corruption Unit. “We talk abroad, and I say, ‘You don’t have any transparency in your corporate ownership,’ and they say, ‘Well, neither do you.’”

It’s not just the EU and the U.K. that are ahead of the United States.

“Egypt and the Seychelles just passed a law, Indonesia is passing a beneficial ownership registry, Ghana and Nigeria have committed to beneficial ownership registries, and we still don’t have a law on the books,” said Lakshmi Kumar, a policy director with Global Financial Integrity, a think tank.

The fact that the move has been included as part of the defense budget is indicative of a fundamental shift in the way in which the threat posed by illicit finance has been viewed over the years. 

Prior to the terrorist attacks of Sept. 11, 2001, money laundering was largely seen as a development issue as kleptocrats and criminals sought to park their ill-gotten gains in the world’s financial havens. The United Nations Office on Drugs and Crime estimates that between $800 billion and $2 trillion is laundered each year—equivalent to 2 to 5 percent of the global economy. 

After 9/11, the U.S. government made choking off terrorist financing an integral part of its counterterrorism strategy. But over the past decade, a series of investigations have revealed that the threat anonymous shell companies pose to U.S. national security is more amorphous and extends far beyond terrorist financing. 

A 2011 military investigation found that $3.3 million in Department of Defense contract funding had been funneled through anonymous companies and later used to buy weapons and explosives for the Taliban. In New York, a 2017 court case revealed how the Iranian government owned and collected rent from a Fifth Avenue skyscraper, despite U.S. sanctions. A 2017 investigation by the Government Accountability Office couldn’t determine who ultimately owned one-third of the high-security buildings leased to federal agencies because of opaque ownership structures, raising significant questions for operational security. 

Even the pending U.S. legislation isn’t perfect, because the beneficial ownership register would not be public, as it is in Europe. But at least it will be accessible to U.S. law enforcement and could dramatically speed up investigations that rely on time-consuming subpoenas to pry apart Russian dolls of opaque shell companies.

“It would have made it a lot easier if there was a directory, because it would have made it a lot faster in the investigative process because you’re not talking months to get that data,” said LaPrevotte, now a senior investigator with The Sentry, a nonprofit investigative and policy initiative that tracks the finances of alleged war criminals. 


By Amy Mackinnon is a staff writer at Foreign Policy, July 31, 2020