New Law Forces Shell Companies to Disclose Owners, Expands Whistleblower Awards

New Law Forces Shell Companies to Disclose Owners, Expands Whistleblower Awards

2021-01-11 15:30:29

As a federal prosecutor in New York, Daniel R. Alonso spent years leading teams searching through a maze of anonymous property to uncover criminal activity.

“All kinds of shoe leathers had to be examined to determine who was really behind these shell companies,” Alonso recalls. "You would have to sue bank records and lawyers, as well as human sources, and even then you often come to a dead end."

Now, thanks to a turnaround in US money laundering laws, locating the proceeds of foreign bribery, drug trafficking and terrorist financing could be as easy as a few keystrokes.

The new legislation, quietly passed by Congress last month after a decade-long battle, is the most sweeping banking reform of its kind since the passing of the Patriot Act, in the wake of the September 11, 2001 terrorist attacks.

The law also extends control of the trade in precious antiques.

For the first time, shell companies will have to provide the names of their owners, otherwise severe penalties and imprisonment will be imposed. The information is stored in a confidential database accessible to federal law enforcement and shared with banks that are often unwittingly complicit in international corruption.

"It's no exaggeration that this law is a game changer in some serious ways," said Alonso, who now advises clients in private practice on foreign corruption and anti-money laundering issues.

The Corporate Transparency Act was tucked away in a defense spending bill, which was first rejected by President Donald Trump and then lifted by Congress on New Year's Day.

Introduced by Rep. Carolyn Maloney, a New York Democrat, in 2010, it met with early opposition from banks and corporate groups concerned about red tape, as well as states such as Delaware and Wyoming, which generate significant revenue from the registration every year. fetch. the US of nearly 2 million companies and limited companies.

But a series of international financial scandals involving football board FIFA and Malaysia's 1MDB development bank, as well as the leakage of the so-called Panama Papers, eventually softened criticism by revealing the prominent role played by secretive shell companies in concealing the revenues. of illegal activities.

The American financial system – & # 39; the world's largest and most stable – has long been a magnet for dirty money. But the tools to prevent abuse by bad actors have not kept pace with technology and a proliferation of instant, online transactions across borders.

The new law aims to strengthen controls by establishing a registry managed by the Treasury Department that will contain the names of the real owners of domestically incorporated shell companies as well as foreign companies doing business in the U.S. .

Creating a shell company in states like Delaware requires little more than a $ 90 payment and a one-page letter with the entity's name, P.O. Box and a registered agent who is often a law firm dedicated to manufacturing businesses in bulk. The real owners are rarely mentioned, their identities hidden under a web of subsidiaries. But once established, the entities can be used to buy legitimate assets, such as real estate, using illegally obtained money secretly transferred to a US bank account.

One such Delaware-based company, Essential Consultants LLC, was used by former Trump personal attorney Michael Cohen to hide payments made to porn star Stormy Daniels. Others registered in the state have been linked to corrupt military officers in Venezuela, drug-trafficking guerrillas from Colombia and former Zimbabwean dictator Robert Mugabe.

"Congress was late to recognize that secrecy is alive and well in the United States," said David P. Weber, a former US Treasury investigator who was one of two experts who reviewed the Panama Papers before they were published. Kleptocrats and corrupt foreign officials did not need secret bank accounts in Switzerland. They were here. "

Less touted, the law is also drastically expanding prices for whistleblowers. Specifically: Persons providing evidence of financial crime are entitled to up to 30% of the money seized by the Treasury or Justice Department when their information leads to successful law enforcement action. Previously, prices were limited to $ 150,000.

"This could eventually become the secret sauce," said Michael Nadler, a recently retired Miami federal prosecutor who has brought charges against dozens of corrupt Venezuelan officials. "It has the potential to arm low-ranking corporate officials who can access sensitive customer information and see criminal behavior."

The Ministry of Justice will also be given extensive powers to request foreign bank account information when they suspect criminal activity. And the law also extends supervision of the trade in precious antiques. Expensive works of art – a common means of hiding the proceeds of corruption – could also be brought within reach of anti-money laundering laws pending a government investigation within a year.

While it may take some time for the bill's impact to be felt, experts believe it will drive some of the nasty foreign money from the US that has driven up real estate prices in major cities like New York, Miami and Los Angeles.

But no one expects crime and corruption to stop. One weakness of the law, says former Treasury investigator Weber, is that it will push crimes further into darkness, away from the US into less reputable jurisdictions where secrecy remains.

"In many ways," he said, "this is like a multi-million dollar whack-a-mole game."

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