New U.S. law puts kibosh on anonymous shell companies


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U.S. finally moves to deter money laundering, terror financing via anonymous shell companies

Money launderers and terror financers will have fewer places to hide their illicit activity in the U.S. in 2021 and beyond.

Long criticized for incorporating anonymous shell companies no questions asked, the U.S. will now require most companies to register their true human owners at the point of formation. Companies will also be required to disclose identities of true owners upon change of ownership.

A part of the recently enacted National Defense Authorization Act, the new reporting rules seek to prevent the illicit use of anonymous shell companies. Anticorruption advocates have long sought this change because it will bolster AML/CTF enforcement in the U.S.

U.S. shell companies a favorite vehicle for financial crime

Former BlackRock executive Morris Pearl lauded the new law in a Fortune Magazine op/ed. Pearl described the U.S. as “ the easiest place in the world to form an anonymous shell company that can be used for money laundering, crime, and corruption.”

Pearl also noted that the U.S. is the largest incorporator of companies in the world, and he described how applicants for library cards in the U.S. have to provide more information than creators of new companies. This new legislation will change that.

Illicit actors in the U.S. and around the world have leveraged anonymous shell companies formed in the U.S. for virtually every kind of criminality requiring the flow of money hidden from authorities.

Bi-partisan support for requiring identities of actual human owners

Overwhelming bi-partisan support for the far-ranging National Defense Authorization Act assured its passage independent of the president’s veto. (The veto was unrelated to the AML measures.)

The Wall Street Journal noted that The Treasury Department “has a year to issue regulations detailing how companies would comply. Once the regulations are in place, many companies created in the U.S. would have to disclose the name, birth date, address and a government-issued identification number—such a driver-license number or passport number—of the company’s beneficial owners.”

The new regulations will not apply to businesses that by their nature already have full and obvious disclosures of ownership. Still, the National Federation of Independent Business opposed the legislation as overly burdensome in terms of paperwork and disclosure requirements.

AML Partners CEO Frank Cummings said that concern is unfounded and that compliance will be fast and simple.

“This is minimal reporting. And AML technology can quickly identify operating and non-operating companies,” Cummings said. “This new legislation is a no-brainer in terms of pushing back against money launderers and terror financers. This should have been done years ago.”

FATF has been urging change for years to deter money laundering, terror financing

The global AML/CTF-focused Financial Action Task Force (FATF) would agree with that. FATF has advocated for years that nations must prevent the incorporation of anonymous shell companies and should require the compilation of beneficial-ownership registries available to financial-crime authorities.

Nations like the U.S. that facilitate the incorporation of anonymous shell companies risk being labeled as high-risk for money laundering or non-cooperative with FATF standards intended to reduce and prevent financial crime and terror financing. Leaks like the Panama Papers made the raising of AML/CTF efforts more urgent when they put jaw-dropping financial criminality on front pages around the world.

Cummings said this new U.S. requirement to disclose beneficial ownership will help a lot, but financial criminals will work to exploit other loopholes.

“Moving money through the financial system is key to most criminal enterprises,” Cummings said. “We have terrific AML/CTF technology to help financial institutions identify and prevent suspicious activity. But a key component is will and strong governance. And transparency—as always—is a key element of boosting good behavior. The more transparency in financial transactions, the better the AML/CTF Compliance and results.”

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