[Joint House and Senate Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
COMBATING KLEPTOCRACY WITH
INCORPORATION TRANSPARENCY
=======================================================================
HEARING
before the
COMMISSION ON SECURITY AND COOPERATION IN EUROPE
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
OCTOBER 3, 2017
__________
Printed for the use of the
Commission on Security and Cooperation in Europe
[CSCE 115-1-6]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via www.csce.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
27-157 PDF WASHINGTON : 2017
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Publishing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001
COMMISSION ON SECURITY AND COOPERATION IN EUROPE
LEGISLATIVE BRANCH COMMISSIONERS
HOUSE
SENATE
CHRISTOPHER H. SMITH, New Jersey, ROGER F. WICKER, Mississippi,
Co-Chairman Chairman
ALCEE L. HASTINGS, Florida BENJAMIN L. CARDIN, Maryland
ROBERT B. ADERHOLT, Alabama JOHN BOOZMAN, Arkansas
MICHAEL C. BURGESS, Texas CORY GARDNER, Colorado
STEVE COHEN, Tennessee MARCO RUBIO, Florida
RICHARD HUDSON, North Carolina JEANNE SHAHEEN, New Hampshire
RANDY HULTGREN, Illinois THOM TILLIS, North Carolina
SHIELA JACKSON LEE, Texas TOM UDALL, New Mexico
GWEN MOORE, Wisconsin SHELDON WHITEHOUSE, Rhode Island
EXECUTIVE BRANCH COMMISSIONERS
Vacant, Department of State
Vacant, Department of Commerce
Vacant, Department of Defense
[ii]
COMBATING KLEPTOCRACY WITH
INCORPORATION TRANSPARENCY
----------
October 3, 2017
COMMISSIONERS
Page
Hon. Sheldon D. Whitehouse, Commissioner, Commission on Security
and Cooperation in Europe...................................... 1
Hon. John Boozman, Commissioner, Commission on Security and
Cooperation in Europe.......................................... 11
Hon. Jeanne Shaheen, Commissioner, Commission on Security and
Cooperation in Europe.......................................... 12
Hon. Gwen Moore, Commissioner, Commission on Security and
Cooperation in Europe.......................................... 15
Hon. Benjamin Cardin, Ranking Member, Commission on Security and
Cooperation in Europe.......................................... 18
WITNESSES
Charles Davidson, Executive Director, Kleptocracy Initiative,
Hudson Institute............................................... 3
Patrick P. O'Carroll, Executive Director, Federal Law Enforcement
Officers Association [FLEOA]................................... 6
Caroline Vicini, Deputy Head of Delegation, Delegation of the
European Union to the United States............................ 7
Gary Kalman, Executive Director, FACT Coalition.................. 9
APPENDICES
Prepared statement of Hon. Sheldon Whitehouse.................... 29
Prepared statement of Charles Davidson........................... 31
Prepared statement of Patrick P. O'Carroll....................... 34
Prepared statement of Caroline Vicini............................ 36
Prepared statement of Gary Kalman................................ 39
[iii]
COMBATING KLEPTOCRACY WITH
INCORPORATION TRANSPARENCY
----------
October 3, 2017
Commission on Security and Cooperation in Europe
Washington, DC
The hearing was held at 2:36 p.m. in Room 562, Dirksen
Senate Office Building, Washington, DC, Hon. Sheldon D.
Whitehouse, Commissioner, Commission on Security and
Cooperation in Europe, presiding.
Commissioners present: Hon. Sheldon D. Whitehouse,
Commissioner, Commission on Security and Cooperation in Europe;
Hon. John Boozman, Commissioner, Commission on Security and
Cooperation in Europe; Hon. Jeanne Shaheen, Commissioner,
Commission on Security and Cooperation in Europe; Hon. Gwen
Moore, Commissioner, Commission on Security and Cooperation in
Europe; and Hon. Benjamin Cardin, Ranking Member, Commission on
Security and Cooperation in Europe.
Witnesses present: Charles Davidson, Executive Director,
Kleptocracy Initiative, Hudson Institute; Patrick P. O'Carroll,
Executive Director, Federal Law Enforcement Officers
Association [FLEOA]; Caroline Vicini, Deputy Head of
Delegation, Delegation of the European Union to the United
States; and Gary Kalman,
Executive Director, FACT Coalition.
HON. SHELDON D. WHITEHOUSE, COMMISSIONER, COMMISSION ON
SECURITY AND COOPERATION IN EUROPE
Mr. Whitehouse. Thank you, everyone. My apologies for being
a little bit late. I am very, very grateful to the panel for
being here and to Chairman Wicker for working with me to hold
this hearing on combatting crime and corruption through
increased transparency.
From 2012 to 2015, the Azerbaijani Government reportedly
funneled 2.5 billion euros from four U.K.-based shell
companies, through an Estonian branch of a Danish bank, to
bribe European politicians and Azerbaijani elites in a scheme
dubbed the ``Azerbaijani Laundromat.'' According to a report
from the Organized Crime and Corruption Project, the money
bought silence during a time when the Azerbaijani Government,
and I quote, ``Threw more than 90 human rights activists,
opposition politicians, and journalists into prison on
politically motivated charges.''
The Azerbaijani Laundromat is not a unique scheme. In 2015,
the Panama Papers exposed what many in the law enforcement and
anticorruption world already knew, that corrupt officials, tax
cheats, drug traffickers, terrorists and criminals from around
the world routinely use shell companies to hide assets and
obscure illegal activities. America's lax corporation laws have
made the United States a favorite destination for money
laundering. Make no mistake, we are now a facilitator as well
as a target in this racket.
With every passing day, we learn more about how Russian and
Russian kleptocrats exploit opaque business laws to hide the
ill-gotten riches, bribe corrupt officials, and undermine the
world economy and democratic institutions. Heather Conley at
the Center for Strategic and International Studies [CSIS] wrote
in her report, ``The Kremlin Playbook,'' that corruption is
the, quote, ``lubricant'' with which the Russians operate. CSIS
warns that to fight the corruption that gives Russia this
channel of influence, and I quote them, ``enhancing
transparency and the effectiveness of the Western democratic
tools, instruments and institutions is critical.''
Russian kleptocrats, foreign drug dealers, and
international tax cheats all use the same tool to launder their
ill-gotten gains and evade law enforcement: the shell
corporation. A shell corporation serves no economic purpose and
conducts no real business. Instead, these entities exist to
hold legal title to bank accounts, real estate, or other assets
hiding the true owners. America's a haven now for those doing
mischief through shell corporations. It fact, starting a shell
corporation in this country can be easier than getting a
library card.
Currently, no state requires the disclosure of beneficial
owners, the real human beings who own the companies. Instead,
corporate records can identify the owner as just another shell
corporation or a professional agent who was paid to sign the
needed forms and never speak of them again, or a lawyer who
refuses to disclose a client, citing attorney-client privilege.
We have seen over and over how foreign governments and criminal
organizations have abused our lax incorporation laws.
The Iranian Government used a string of generic businesses
to obscure its ownership of a 5th Avenue skyscraper. A Mexican
drug cartel used an Oklahoma corporation to launder money
through a horse farm. A crime syndicate set up a web of
corporations in eight states as part of a $100 million Medicaid
fraud scheme. A human trafficking ring based in Moldova hid its
crimes behind anonymous corporations in Kansas, Missouri and
Ohio. Then, there are the Panama Papers, over 11 million
documents leaked from a Panamanian law firm. They reveal
mischief conducted through shell corporations like the 2011
purchase of a $3 million oceanfront condo in Miami by a
Brazilian politician facing corruption charges. And in 2015,
after a lengthy investigation, The New York Times uncovered
that a Russian banker, suspected of ties to organized crime,
purchased a nearly $16 million condo in Manhattan's Time Warner
Center. FinCEN, the Financial Crimes Enforcement Network, a
division of the U.S. Treasury Department, found that 30 percent
of the cash purchases of high-end real estate by shell
companies in six major cities involved a suspicious buyer--30
percent. With so many properties serving essentially as lavish
safe deposit boxes, the housing supply tightens, raising costs
for American families.
The crimes being hidden may be complex and the assets they
conceal may be elaborate, but the answer to the problem of
shell corporations is simple: Require private corporations to
report and update their beneficial ownership information. I've
introduced legislation with Senators Grassley and Feinstein
that does just that. Senators Rubio and Wyden have also teamed
up on related legislation. Transparency into shell corporations
is not a novel idea. As we will hear from the panel, every
member of the European Union has committed to ensuring such
transparency. The United Kingdom has already implemented its
own transparency law.
The light of transparency is about to shine on criminal
assets hidden in European shell companies, which means that
lots of money will be looking for new, dark homes. We cannot
let America become that new, dark home for corruption and
crime. In the year 1630, John Winthrop told his fellow early
settlers that we must always consider that we shall be as a
city upon a hill. The eyes of all people are upon us, he said.
If we become the new, dark home, I fear we will risk losing our
place as that city on the hill, as a beacon of justice. In the
global battle of ideas, chaining our American reputation to
international crime and corruption is a self-
inflicted stain that we do not need.
So I'm delighted to have this hearing today. I look forward
to hearing from our distinguished witnesses. And I'm delighted
that Senator Shaheen and Senator Boozman have joined us.
Everybody's full statement will be made a matter of the record,
so if you can leave your spoken remarks to less than five
minutes, we'll have more time for back and forth.
Please proceed, Mr. Davidson.
CHARLES DAVIDSON, EXECUTIVE DIRECTOR, KLEPTOCRACY INITIATIVE,
HUDSON INSTITUTE
Mr. Davidson. Certainly. Thank you.
Acting Chairman Whitehouse, Co-chairman Smith, and members
of the Helsinki Commission, thank you for inviting me to
testify today. I would also like to thank Paul Massaro, staff
of the Commission, for helping to arrange this important
discussion. My name is Charles Davidson and I am the executive
director of the Hudson Institute's Kleptocracy Initiative,
which researches how authoritarian regimes and globalized
corruption threaten democracy, capitalism, and security.
Kleptocracy, the business model of 21st century
authoritarianism. Today, the most dangerous threat to our
national security is the aggression of authoritarian regimes
that actively seek to undermine our freedom and democracy, and
to export authoritarianism into the OSCE region and around the
globe. And let us not be mistaken: What is at stake is the
survival of our civilization. These regimes have already
upended the post-World War II international order via invasion
and violation of treaties, perverted a rules-based global
system of relatively fair economic exchange via intellectual
property theft and corrosive business practices, and attacked
our government's computer systems. And these regimes are
sharing best practices and increasingly behaving like an axis
of evil.
The most important thing I want to bring to our attention
today: It is essential to understand that these authoritarian
regimes have all adopted the business model of 21st century
authoritarianism, a model whereby those who govern--usually a
very small group, family, or even individual--loot their own
country and store the proceeds in free and democratic nations
such as ours, whose rule of law and reliable institutions serve
to protect their ill-gotten gains. That business model equals
kleptocracy. So 21st century authoritarianism, and all the
threats that it poses, cannot be dissociated from kleptocracy.
They have tied the knot. Where we find one, we find the other.
And the situation is serious. Authoritarian kleptocracy has
been growing, while freedom and democracy has been in
recession.
But the authoritarian/kleptocratic model has an obvious
vulnerability. Given that kleptocratic loot is stored within
our shores, we have huge leverage over this business model. The
problem is, we often don't know where they've stored their
loot, due to the ease with which one can establish anonymity of
ownership. And we, the United States of America, are the
easiest and safest place to establish anonymity of ownership.
For a superb summary of this disgraceful situation, I recommend
Kara Scannell and Vanessa Houlder's piece in the Financial
Times published May 8th, 2016, ``U.S. Tax Havens: The New
Switzerland.''
As a general proposition, as an overarching challenge our
society faces, as a fundamental existential issue for our
civilization as we know it, it should be obvious that we cannot
push back and reverse the authoritarian surge while being the
bankers, lawyers, yacht builders, luxury lifestyle purveyors,
to those who seek the destruction of freedom and democracy.
Kleptocracy, a vector of political decay. How is
kleptocracy undermining our freedom and democracy, promoting
political decay? When the kleptocrats come here, they bring
along their values, which are not ours. We were naive. We
thought their offspring would go to school here and become
freedom and democracy lovers. That hasn't happened. Instead,
the kleptocratic life-juice of only valuing money and power has
perverted our system. Kleptocratic regimes have become
increasingly adept at purchasing many of the less morally
vigilant members of our elites. In Europe, this is often
referred to as schroederization. And this pimping is often done
surreptitiously, via obscure ownership structures where
beneficial ownership is not known, providing among other things
plausible deniability. Does that sound familiar?
Kleptocracy, we incentivize it. As I said in testimony last
December to the House's Subcommittee on Europe, Eurasia, and
Emerging Threats, ``Providing a safe haven for the proceeds of
corruption establishes an incentive for corrupt practices. In
my view this question of incentivization has been neglected,
and is key to understanding the overall political challenge
faced in terms of reform.''
Anonymous companies, the asset protection they provide
assured by our rule of law and reliable institutions,
incentivizes kleptocracy. We must take away the punch bowl. And
we must be aware of the struggles of those trying to escape a
kleptocratic past, and the role played by our European allies.
Ben Judah, in ``How Offshore Finance Sank Western Soft
Power,'' that appeared in The American Interest May 8th, 2014,
quotes Daria Kaleniuk, head of Kiev's Anti-Corruption Action
Centre--she still is head of this--``What we found was that the
money stolen in Ukraine was heading into British and European
tax havens and hidden using shell companies inside the European
Union. This was very uncomfortable to find out. What we felt is
the Western elites were being hypocritical to us--preaching
anti-corruption but allowing this.''
Judah quotes Mustafa Nayem, one of the leaders of the
Maidan Revolution: ``Why do they only now investigate the
hidden fortunes that were stolen and hidden in Austria and in
Switzerland? We told the Europeans and we told their embassies
a hundred times this money was stolen and hidden in their
countries. And nothing happened. Now that the regime has
fallen, they suddenly--in a matter of days--can reveal the
stolen money. But why did they not do this before? They are
guilty--guilty of leaving us alone with these thieves. They are
guilty of allowing them to plunder us.''
As per my above referenced congressional testimony, ``As
Western diplomats struggled to impress on Kyiv's politicians
the value of the rule of law, Ukrainian elites,''--and elites
really should be in quotes, pardon me--``were stashing wealth
in the West. This happens across Eurasia, where authoritarian
elites now treat London, New York, and other Western
jurisdictions as corruption services centers.''
And what of the demand for better government and democracy
in such a situation? As Francis Fukuyama said introducing
Senator Carl Levin at a conference organized by Global
Financial Integrity in 2008, ``There can be no demand for
democracy if all the rich people, if all the elites in the
country, can manage to protect their own private fortunes. They
have no reason to work with other people to resist the
government, to demand democracy, to demand accountable
government. There's no demand for less corrupt government
because everybody has taken care of themselves as an individual
and it delegitimizes democracy . . . anything that can be done
to reduce the ability of people to transfer assets and to avoid
the sovereignty of the state, it seems to me, is very
important.''
As we know from the difficulties of asset recovery efforts,
including our Department of Justice's Kleptocracy Asset
Recovery Initiative, it is often very difficult to find assets
hidden via anonymous companies. We must stop incentivizing
corrupt and kleptocratic practices.
Kleptocracy: reform, or submit to tyranny. As described,
the anonymous ownership of assets is a dirty secret behind the
rise of authoritarianism. We must dramatically curtail secrecy
in the ownership of assets: abolish the anonymous ownership of
assets in the United States of America and, further, pressure
other jurisdictions to do the same. We have the power to do it,
and if we clean up our act here it will lay the groundwork for
improving what is a global cancer.
Thank you.
Mr. Whitehouse. Thank you, Mr. Davidson.
Mr. O'Carroll, thank you for bringing the perspective of
the Federal Law Enforcement Officers Association. You may
proceed.
PATRICK P. O'CARROLL, EXECUTIVE DIRECTOR, FEDERAL LAW
ENFORCEMENT OFFICERS ASSOCIATION [FLEOA]
Mr. O'Carroll. Good afternoon, Acting Chairman Whitehouse,
Senator Shaheen, Senator Boozman, and Representative Moore.
I am the executive director of the Federal Law Enforcement
Officers Association, or FLEOA, which is a not-for-profit,
nonpartisan, professional association which represents more
than 26,000 federal law enforcement officers and agents from 65
federal agencies.
FLEOA applauds your Commission's focus on incorporation
transparency, the prevention of money laundering, and the
financing of criminal enterprises and terrorism. FLEOA agrees
with the report of the Financial Fraud Task Force and its
findings that the United States has many laudable anti-money-
laundering efforts, but also has serious gaps in law
enforcement's ability to identify the owners of companies,
leaving our financial system vulnerable to dirty money.
Recently, one of our New York Secret Service agent members
began a routine check forgery investigation into a stolen check
being deposited into a bank account. The agent examined the
available bank information and found that the account was for a
Florida business with a single owner, no business plan filed,
and no apparent product or service. Further investigation
utilizing court orders and subpoenas revealed multinational
wires and transfers involving millions of dollars passing
through this account. The agent enlisted the assistance of the
Treasury Department, and identified 80 sub-companies and
accounts transferring about $1 billion dollars between them.
This is a classic example of money laundering with ties to
financial crime, narcotics trafficking and terrorism. Yet,
because of the insidious protections afforded by shell
corporations, only one person was arrested and the proceeds of
one account was seized.
The Financial Crimes Enforcement Network, or FinCEN, is a
U.S. Treasury bureau whose mission is to safeguard the
financial system from illicit use, combat money laundering, and
promote national security. FinCEN has found that shell
companies--which are business entities without active business
or significant assets--are an attractive vehicle for those
seeking to launder money or conduct illicit activities, both
domestically and internationally. FinCEN also believes that all
these shell companies have been used domestically as vehicles
for financial crimes with credit cards, purchasing fraud and
fraudulent loans. In addition, FinCEN cautions that
international wire transfers allow for the movement of billions
of dollars by unknown owners, which can facilitate money
laundering and terrorist activities.
New York Representatives Carolyn Maloney and Peter King,
along with nine cosponsors, have introduced House Bill 3089,
The Corporate Transparency Act of 2017. In introducing the
bill, Congresswoman Maloney stated, ``Anonymous and shell
companies have become the preferred vehicle for money
launderers, criminal organizations, and terrorist groups
because they can't be traced back to their real owners and the
U.S. is one of the easiest places in the world to set up
anonymous shell companies.'' Congressman King also said: ``The
Act targets this problem by requiring a company that has the
characteristics of a shell corporation to disclose who benefits
from the company's operations and make that information
available to law enforcement.'' The Corporate Transparency Act
of 2017 has subsequently been introduced in the Senate by
Senators Wyden and Rubio. FLEOA strongly endorses this bill.
We are also supportive of the TITLE Act, introduced by you,
Senator Whitehouse, and Senators Grassley and Feinstein. FLEOA
strongly believes that legislation requiring companies to
disclose their purpose, actual ownership, and appropriate
contact information would assist law enforcement in identifying
the criminal and terrorist organizations that are exploiting
this weakness. Only with full transparency can we prevent the
scourge of illicit funding provided by the anonymity of shell
corporations.
Thank you for this opportunity to testify today and I'll be
happy to answer any of your questions.
Mr. Whitehouse. Thank you very much, Mr. O'Carroll.
We are very honored to have Ms. Vicini here as the deputy
head of the Delegation of the European Union to the United
States. We thank you for taking the trouble to join us and
welcome your remarks.
CAROLINE VICINI, DEPUTY HEAD OF DELEGATION, DELEGATION OF THE
EUROPEAN UNION TO THE UNITED STATES
Ms. Vicini. Thank you, Chairman Whitehouse, Senators
Boozman and Shaheen, and Representative Moore.
Allow me to start this with presenting our condolences for
the horrible shooting in Las Vegas. We are terribly sorry for
you all, and hope that you have not family and friends that
have been touched by this. And our thoughts are going to all
the victims and their families.
This is my privilege to have this opportunity to present to
you today. I'm here to exchange views and provide an overview
of the European Union's response to money laundering, in
particular in terms of transparency of beneficial ownership
information.
We live in a world where terrorist groups and organized
crime organizations expand the scope and complexity of their
illicit activities. Their corruption exploits the freedoms and
benefits offered by globalization and the huge number of
financial transactions processed every day by a diverse number
of financial actors. Across the globe, open-service shell
companies, trusts, private foundations, and other entities
serve as vehicles through which money flows. These complex
structures are composed of companies with unknown owners and
beneficiaries, serviced by multiple bank accounts housed in
numerous banks, situated in jurisdictions with strong bank-
secrecy legislation that are unlikely to cooperate with foreign
authorities.
The European Union is at the forefront of global efforts to
make corporate transparency effective to combat global
financial crime, including corruption. Europe's response is
centered around three key elements: the current EU rules in
force, proposals to reinforce these rules, and international
cooperation.
The current EU rules in force, the so-called Fourth Anti-
Money Laundering Directive--the EU has accomplished much in
terms of the traceability of financial transactions through a
series of money-laundering directives. The landmark Fourth
Anti-Money Laundering Directive entered into force on the 26th
of June this year, some 20 years after the first such
directive. Banks should, of course, possess information about a
customer--if it is Mr. or Mrs. Smith--before they open a bank
account. However, the situation is much more difficult when the
bank does not deal with the customer directly, but rather with
company A or trust B. In these cases, if the bank is not able
to identify who is behind a company or trust, the ability to
collect relevant information such as the source of funds or the
reason why the account is opened is severely compromised. The
bank needs to be sure that the company or the trust is not a
shell for disguising illicit activities.
That is why the Fourth Directive forces identifying the
beneficial owners of a company or a trust mandatory at the
start of every new business relationship. But that is not all.
The directive requires this information to be recorded
centrally on a register or data-retrieval system in the EU
member states.
The purpose is fundamental: To allow swift and efficient
access to important information by banks that will also allow
them to fulfill their legal obligations, but also access by all
national competent authorities that play a role in preventing
money laundering and terrorism financing. This includes the
Financial Intelligence Units, which are equivalent in the
member states to the U.S. FinCEN. The EU member states are
currently setting up their registers.
But the EU has also proposed to reinforce these rules. The
EU has faced heinous terrorist attacks in recent years. While
less dramatic but equally telling, there was a strong public
reaction to the Panama Papers scandal. In these circumstances,
the European Commission took further steps in July 2016 with a
new proposal to present targeted measures to strengthen the
Fourth Directive. The European Commission proposed the
interconnection of these central registers of beneficial
ownership information. Given the increasing number of cross-
border financial transactions, authorities would be able to
consult registers and access information across member states
much more easily.
Public access to the beneficial ownership information for
for-
profit companies and trusts--corporate structures would be
incentivized to provide that they're run as clean businesses.
We are not talking about unfettered access to information,
rather granted in a full respect to the right of privacy.
Sensitive information such as family-trust structures would be
excluded from public access.
And, finally, the international context. The promotion of
reforms, good governance, democracy, the rule of law and human
rights, and public administration reform is integral to the
European Union's approach to both the Western Balkans and the
east European Union's approach--and to the Eastern Partnership
countries. Countering corruption and organized crime are
significant elements in our approach. Considerable direct
assistance is provided at the national and regional level. We
have seen major reforms in Georgia and Ukraine on the back of
EU support. And in the Western Balkans, as potential members of
the European Union, our policy is one of fundamentals first.
But the European Union is not alone. We share
responsibility with the United States, complementing each other
as key players in this joint fight. We recognize the commitment
of the United States, underpinned by strong enforcement
capabilities. Furthermore, the European Commission, some of the
EU member states, and the United States are vocal members of
the Financial Action Task Force.
Honorable members, to conclude, I would like to reiterate
that the success of a policy to fight against money laundering
and terrorist financing is based on complementary policies,
both preventive and enforcement. Strong beneficial ownership
requirements are not a panacea, but a key element if we want to
address both money laundering and terrorism financing risks.
The United States and the European Union must continue to
support the successes we have achieved together on the
international stage, driving up the standards. We must continue
to speak with the same voice to convince our partners that
there is still room for improvement.
Thank you very much.
Mr. Whitehouse. Thank you very much.
And our final witness, Mr. Kalman from the FACT Coalition.
GARY KALMAN, EXECUTIVE DIRECTOR, FACT COALITION
Mr. Kalman. Senator Whitehouse, Senators Boozman, Shaheen,
and Representative Moore, thank you for holding this important
hearing. On behalf of the Financial Accountability and
Corporate Transparency Coalition, or the FACT Coalition, I
appreciate the opportunity to talk about a foundational reform
in the global anticorruption movement.
The coalition is a nonpartisan alliance of more than 100
state, national, and international organizations working to
combat the harmful impacts of corrupt financial practices. The
coalition formed in 2011, but I joined just last year, one week
after the release of the Panama Papers. It was an interesting
start.
The incident exposed the direct connection between corrupt
and criminal practices and the secrecy that affords kleptocrats
and others a vehicle to hide the money, fund illicit activity,
and move those funds around the globe with impunity. This
hearing is an important opportunity to further explore the
link.
Traffickers in counterfeit and other illicit goods and
services hide behind secret corporate entities and make it more
costly for legitimate businesses to engage in global commerce.
This cost is the reason that CEOs of Dow Chemical and several
other multinational corporations have written in support of
transparency. In a recent letter to Congress, they wrote that
``When the true owners of companies put their own names on
corporate formation papers, it increases the integrity of the
system and provides a higher level of confidence when managing
risk, developing supply chains, and allocating capital.''
These CEOs are not alone. According to Ernst and Young's
2016 Global Fraud Survey, 91 percent--91 percent--of senior
executives believe it is important to know the ultimate owner
of the entities with which you do business.
Despite the importance, we are not winning this battle. In
a report written by former U.S. Treasury Special Agent John
Casarra for our coalition, he noted that in efforts to reclaim
laundered money we are currently, quote, ``a decimal point away
from total failure.'' His analysis is based on estimates that
globally we catch only about 0.1 percent of laundered money.
While kleptocrats and other criminal enterprises have
updated their tools for the 21st century by utilizing anonymous
companies, we have not updated our laws to catch them. And in
2016, the Financial Action Task Force, as has been mentioned,
reported that the ``lack of timely access to accurate and
current beneficial ownership information remains one of the
fundamental gaps in the U.S. context.''
That said, there is some meaningful progress being made.
You've just heard that there's progress in the European Union.
In the Ukraine, a nation compromised by secrecy and
kleptocracy, a new generation of public officials has
identified incorporation transparency as a critical first step
in lifting the veil of secrecy. The country has begun
collecting beneficial ownership information and posting it
online.
Here in the U.S., bills have been introduced in this
Congress. And I want to thank Senators Whitehouse and Rubio,
Representatives Smith and Moore for sponsoring the legislation.
The TITLE Act and the Corporate Transparency Act would each
directly address the problem we are discussing today. While
slightly different, each bill includes critical provisions
needed to identify corporate owners. The definition of
beneficial owner, with its focus on natural persons, is
important to prevent the shell games in which one company owns
another or the naming of nominee directors in lieu of the true
owners. Mossack Fonseca, the now-infamous Panamanian law firm,
employed a woman who was named as the director for
approximately 20,000 companies. The value in collecting this
information is one of the reasons that multiple trade groups,
representing large and small banks and credit unions, have
indicated their support.
In a separate but related effort to combat anonymous
corporations active in U.S. real estate markets, the Financial
Crimes Enforcement Network, or FinCEN, recently extended and
expanded an initiative known as Geographic Targeting Orders, or
GTOs. The GTOs require the collection of beneficial ownership
information for certain cash-financed, high-end real estate
transactions. In renewing the GTOs in August, FinCEN noted--as
Senator Whitehouse also said--that in 30 percent of the real
estate transactions covered by the rule the purchaser was
someone who had a suspicious activity report filed on them.
We are seeing progress globally, in Congress, in the
administration, and in the private sector, and continued
support from a wide range of anticorruption, human rights, and
other organizations. We now have an opportunity to lift the
veil of secrecy. We must end the use and abuse of anonymous
companies.
I thank you for this opportunity and look forward to
answering any questions.
Mr. Whitehouse. Thank you, Mr. Kalman.
I will turn first to Senator Boozman for any questions or
comments he may have.
HON. JOHN BOOZMAN, COMMISSIONER, COMMISSION ON SECURITY AND
COOPERATION IN EUROPE
Mr. Boozman. Thank you, Senator Whitehouse. And, again,
thank you so much for having this very interesting and timely
hearing.
I'd like to ask you a little bit about how this works in
the sense that--can you talk about a little bit--perhaps you,
Mr. O'Carroll--about the specific methods that are used to
launder money through anonymous shell companies and real
estate? Talk to us a little bit about the specifics of how that
exactly works.
Mr. O'Carroll. Yes, Senator. I guess going back to the
investigation that I spoke about in my testimony, what happens
is that when an individual wants to open up a shell company,
they go into a bank and they basically are just asked for some
very superficial information to open up the account, which
doesn't necessarily mean--you don't have explain what your
business does. You don't have to show anything about the
ownership of it. You don't have to show anything about the
beneficiaries of it. It's really just a very simple
transaction, probably with even less paperwork than opening up
a savings account.
Anyway, once that happens, what will happen then is that
you will start doing the sub-accounts, which is what happened
in this case here. And each of the people trying to launder
their money will then put money into one sub-account and then
transfer it into another. And as they transfer the money back
and forth, it's going internationally in many cases, and it
gets pretty much washed. So by the time we start our
investigation on it, we'll be able to see transactions of large
amounts going back and forth, but we really don't know from who
to who.
And then again, as one of my colleagues there at the table
said, is that oftentimes the U.S. Government is incapable then
of being able to target that account and do anything to, you
know, grab the assets in it, or anything else. I think it was,
like, 0.1 percent is recovered.
Mr. Boozman. Right. So we have pretty strict laws about
individuals going in and depositing money. And that triggers
certain things, or withdrawals--cash withdrawals. So this
allows, through that, to essentially counter that?
Mr. O'Carroll. Agreed. The example is, is that if someone
who's doing more than $10,000 in a personal account, that
information would be provided to the government. In this case,
it isn't.
Mr. Boozman. Right. We've talked about the bills that have
been introduced and things. Is there anything else that we
could do to help law enforcement to identify shell corporations
conducting money laundering? And the rest of you all can jump
in if you'd like.
Mr. O'Carroll. I'll just take the first crack at it, if you
don't mind.
Mr. Boozman. Sure.
Mr. O'Carroll. In terms of that, one of the things that
we're interested in is that if the banking community would
cooperate with law enforcement, it would help a lot. If
somebody comes in and says that they have a pretty simplistic
corporation doing, you know, whatever type of business or
service it is. And let's say for months, years--whatever, small
transactions are going back and forth, very normal, looks like
a normal business. But then all of a sudden, when millions of
dollars start going back and forth into that account, what we'd
like is for the banking community to do due diligence and
either go in and ask the account holder, is this accurate? Is
this part of your business? And put them at ease. Or, probably
the best part, would be notify law enforcement that this
account now is becoming very active. That would be one of the
of the requests we'd have.
Mr. Boozman. Anybody else? Are we cooperating with Interpol
and Europol and those agencies to any extent with this? The
international?
Mr. O'Carroll. As an example, the Financial Crimes Network
in the United States, FinCEN, does deal very closely with the
European agencies and international agencies on sharing that
information.
Mr. Kalman. I would add that we've talked with a number of
Treasury special agents and folks involved in trying to combat
financial crimes, and one of the things we heard was when they
go overseas and do trainings--our State Department will provide
trainings for other law enforcement agencies in other
countries--one of them said almost every time he goes, somebody
in the audience will raise their hand and say: You know, we
have this issue in our country, and we've been following this
case, and it goes back to someplace called Delaware. Could you
help us? And he said, I'm embarrassed to say that here I am
preaching the virtues of anticorruption, here I am telling them
that they need to do better, and yet we're the ones that
actually have limited opportunity to help them.
Mr. Boozman. Right. No, it's a good point.
Thank you, Senator Whitehouse.
Mr. Whitehouse. Thank you very much, Senator.
We'll turn to Senator Shaheen, and then I want to also
recognize that Representative Moore has joined us. She is one
of the authors of the principal legislation. I'm delighted that
she has joined us. And we will turn to her after Senator
Shaheen.
HON. JEANNE SHAHEEN, COMMISSIONER, COMMISSION ON SECURITY AND
COOPERATION IN EUROPE
Mrs. Shaheen. I think this is for Mr. Davidson and Mr.
Kalman. My perception is that the public does not seem to be
outraged about this. Can you speculate about why there's not
more outrage about what's going on?
Mr. Davidson. With pleasure. My first reflex to that is
that it's hard to be outraged by what is secret. And I almost
added a little section in my talk about secrecy, because this
is a huge, huge problem, and it's really part of a global
problem of financial secrecy and how much money or how much
value in assets is held via offshore secrecy jurisdictions that
we just don't know. But it's something like at least $32
trillion, maybe as much as $60 trillion. But of course, nobody
knows. And so this whole anonymous company issue--the secrecy
element makes it very, very difficult to explain it to the
citizen voter.
I think if we look at what the secrecy is doing and what
anonymous companies are permitting politically--and recent
events in our country have underscored some of this problem a
little bit--without mentioning any names--I think if we look
at, in particular, authoritarianism--and there we have lot of
evidence that's in the newspapers, that's evident, that people
see--they can see how this is corrosive politically, and that
can uncork a perhaps broader understanding of the issue.
Obviously the fourth estate has a huge role to play in this,
and I think they've been playing that role increasingly.
One of the things we very much try to do in our work at
Hudson's kleptocracy initiative is feed stuff to the fourth
estate, and they've very eager for it. And I think we're far
ahead of where we were a few years ago. And current events may
help goose that. But authoritarianism, I think, is a real key.
And when we look at that and what's going on--and not just
Russia, everybody's obsessed with Russia--but if we look at
China, and all sorts of surreptitious ways in which they are
influencing with a sort of new kind of soft power, events here
and all over the world, we'll find that anonymity is absolutely
key, because it's how you can disguise what you're doing.
And we find this time and time again. We're seeing this
with a lot of the websites that have been used, increasingly.
There's the Facebook business, but there are all these websites
and operations that have been owned by LLCs or anonymous
companies. A lot of this has started coming to light. That's
actually a big dossier, potentially, in terms of the public
becoming much more attuned to this problem.
Mrs. Shaheen. Mr. Kalman, did you want to add anything?
Mr. Kalman. I would agree that you can't be outraged about
what you don't know, so that is a problem. But when you look at
the opioid crisis--and we actually produced a report, or one of
our coalition partners did--talking about that connection
between anonymous companies and opioids, that that is an issue
that outraged people. Now, they may not know that anonymous
companies are facilitating the money--it's not that the drug
dealers are actually doing it because they care about drugs,
it's that they want money, and so they have to launder the
money. And so these vehicles are used.
I think there's a lot of outrage and work going on on
anti-human trafficking. We just had an anti-human trafficking
group, Polaris, join our coalition because law enforcement
would shut down an illicit massage parlor in one part of the
neighborhood, and then another one would pop up. Same owners,
different location, and the cops are playing whack-a-mole. So I
do think that the crimes that they facilitate are the kinds of
things that actually are eliciting the outrage. They just don't
know that what's behind it and what makes it all possible is
the topic we're talking about today.
Mrs. Shaheen. Thank you.
Before the scandal broke about Russian interference in our
elections, I introduced legislation to beef up the Foreign
Agents Registration Act, which really doesn't have much in the
way of teeth to enforce whether anything that's being
advertised in the U.S. is a requirement that people know who's
paying for that. I wonder if you have any thoughts about
whether we need to increase the ability of the Department of
Justice to put more teeth into that act. Anyone? Yes, Mr.
Davidson.
Mr. Davidson. I'd be happy to address that. We've looked at
FARA a great deal, published a few things about that, and met
with the lady who runs FARA. And it needs more teeth and all of
that, but I think we've sort of gone beyond that. I mean, we
need a very, very reinforced FARA.
And, I think, speaking of public outrage, link FARA to
public outrage and where we should be. I don't see why anyone
should be lobbying for a hostile foreign government. I think
that that actually is an issue that a lot of people can get
behind. And FARA could be more than beefed up. But we want to
talk about the swamp and doing something about it, FARA and
what it is supposed to control would be a good place to start.
Mrs. Shaheen. Well, I certainly agree with that. I would
suggest that one of the challenges has been the perception
that--in the public, that attacks around Russian interference
in our elections are partisan, and therefore it's become a
partisan issue which has prevented a strong response to address
the underlying legislation. I'll just throw that out as
speculation.
Thank you, Mr. Chairman.
Mr. Whitehouse. Thank you. I'm going to turn to
Representative Moore, but because it's directly on point to
Senator Shaheen's question, could I ask Mr. Davidson to fill in
how getting around FARA might be facilitated by the use of
shell corporations.
Mr. Davidson. Oh. [Laughter.] Well, we've got a lot of
examples of that, actually. [Laughs.]
Mr. Whitehouse. Would ``easily'' be an accurate response?
Mr. Davidson. Sorry?
Mr. Whitehouse. Would ``easily'' be correct?
Mr. Davidson. Yes. Easily--[laughs]--well, yes, easily
would be a correct response. I mean, the fact of the matter is
if you want somebody to do some work for you without having to
be registered with FARA, it's very easy to pay people via U.S.
shell companies. But they don't need to be U.S. I mean, we've
seen all of this evidence and a lot of publicity about certain
individuals who may have been paid abroad very significant sums
for actions that they've taken in the United States. But if we
just look at U.S. shell companies, I mean, you can disguise
basically anything by paying someone via an anonymously owned
vehicle. And this would include not only political lobbying and
interference but pretty much anything. That's why when I say
it's a threat to our civilization as we know it, it really is.
Soon after I co-founded Global Financial Integrity in 2006,
in 2008 I met with Jack Blum and Raymond Baker, the author of
``Capitalism's Achilles Heel'' and the co-founder of Global
Financial Integrity, and Senator John Kerry. And Senator Kerry
had done a lot on the subject with the Bank of Credit Commerce
International scandal, helping to break that, with Jack Blum,
early in his career, and all of that. And Senator Kerry, very
sadly--it was just the four or five of us in the room--said:
Well, yes, absolutely it is a threat to our civilization. And
that was many, many years ago. And we haven't done anything
about this problem, and it's gotten worse. So we really need to
wake up. And, Senator Whitehouse, I commend you for your
efforts in this area, and the occasional vulgarity in your
language, which I thoroughly approve of. [Laughter.]
Mr. Whitehouse. [Laughs.] Thank you.
Representative Moore.
HON. GWEN MOORE, COMMISSIONER, COMMISSION ON SECURITY AND
COOPERATION IN EUROPE
Ms. Moore. Thank you so much, Senator Whitehouse. I just
want to thank this distinguished panel for taking the time to
give us this testimony. I appreciate, Senator Whitehouse, your
cosponsoring this legislation over here in the Senate. And I
have been a cosponsor of Representative Maloney's legislation
since she first introduced it.
Now, you would think, to listen to you all here, that this
would be a slam dunk here in the United States. I have a couple
of questions. First of all, I want to comment on Senator
Shaheen's question: I mean, why aren't people outraged? Because
people had thought we had fixed this. You know, with stuff like
the Bank Secrecy Act, when people walk into a bank they know
they can't bring their $10,000 worth of cocaine sales money
into the bank. And so they thought they had fixed this. They
didn't know that. Human trafficking, we didn't know how that
could be financed.
So you would think that with all of the research, the
release of the Panama Papers, that this would be a slam dunk.
I'm wondering if you all could describe to us--and then I'm
going to ask you a question too, Ms. Caroline, don't feel left
out here in the EU--what do you think are the barriers to
getting this legislation passed here in the United States?
Mr. Kalman. Let me start off by saying that I think we are
actually making progress after all this time. I think some of
the barriers are lifting. And I think some of the opponents are
engaging. There are, and have been, historic concerns from the
state secretary's estate over this legislation. And people have
been engaging with them. And we hope that there's a pathway
forward that they will no longer oppose these bills. We've made
some changes to the bills to try and accommodate reasonable
concerns from the business community.
Ms. Moore. Like?
Mr. Kalman. Years ago, when the bill was first introduced
there weren't exemptions in the bill. For example, today your
bills exempt publicly traded companies because they already
report this information to the SEC. You exempt companies that
have 20 employees, $5 million in sales, and a brick and mortar
presence because law enforcement tells us that, you know what,
that's big enough that we'll find the real guy or real gal. And
so those are the kinds of things that we've tried to iron out,
where reasonable requests have been made. And we said, oh,
actually, these bills can be implemented with those changes.
So there are still some hurdles and some questions, I know.
But the business community has come on board--or, I should say,
portions of the business community, not the entire business
community. The Chamber of Commerce still has concerns, as you
all know. But with multinational companies saying, hey, this is
about supply chains, the global nature of their operations and
the places where they are running into problems is getting
worse and worse. And so this kind of information is more and
more valuable.
Here's a thing I will say about the banks--you probably
know this better than I--but years ago they said, hey, don't
make us do any anti-money laundering responsibilities, this is
a law enforcement thing, we don't want to get involved. Today,
if you go and talk to them--and we've talked to the
clearinghouse and major banks--and they say, look, we
understand we're going to have a role in these. The bad guys
use our banks and we don't want them to use our banks. We just
want it to be the most efficient that it can be, and so you all
have discussions about that. But on this issue, they believe
that this will help them do their due diligence. It will help
them ferret out bad guys that are trying to use their banks to
launder money. You now have a situation where large sections of
the business community now support this legislation. We hope
that we can make progress in this Congress.
Ms. Moore. There was the conversation here among the
panelists about the United States perhaps taking some
leadership and affecting the entire financial community. I'm
wondering if this legislation were passed, what would prevent
our passage of these laws from driving this business into
Europe and/or solidifying these crimes in Russia or China or
other places? What parallel sort of legislation do we have to
prevent it just from moving to some other jurisdiction?
Ms. Vicini.
Ms. Vicini. Well, thank you for the question. First of all,
I want to come back to the outrage, the question of Senator
Shaheen. Actually, there was a kind of an outrage in Europe
after the Panama Papers. The fourth anti-money-laundering
directive had just been signed in May, and then in the fall,
there was a decision to amend it. So very quickly, although
this was a big piece of legislation, very quickly it was
realized that this could be improved.
And there were a number of issues that were discovered
through the Panama Papers that this new, improved fourth
directive, or the amended one, will also take into account, the
new technologies that we have for financial transactions. It
will strengthen and harmonize checks on financial flows from
high-risk third countries. It will increase the transparency,
also make it easier for investigative journalists and NGOs and
other organizations that are working on this to get access to
this information. And it will confer also more power to the
national finance intelligence units that will also be bound
together by a stronger network.
The work is continuing. And hopefully, therefore, if the
U.S. is strengthening its own legislation, the money will not
come to Europe. That's what we hope, that we have already in
place--or putting in place right now registers, and also this
directive talks about much more than the beneficial owners'
registry. It's also a question of due diligence, of what
sectors are covered. I mean, there's many more sectors than the
pure financial organizations and banks. It's also notaries,
lawyers, real-estate brokers, high-value luxury item vendors,
et cetera.
It's a very wide net where people actually have to perform
due diligence at quite low numbers, and repeated transactions
of smaller transactions. Hopefully we are able in that sense to
prevent it from coming to Europe. And then we work, as I said
before, in the Financial Action Taskforce, to try to lift up
the standards in the rest of the world and keep an eye on those
countries where people can hide money, or where these
institutions are not functioning as they should.
Ms. Moore. Thank you. I'm concerned about money laundering,
but other activities like human trafficking, which you all have
mentioned, and I am concerned about the exemptions. What would
prevent me from saying that I'm an LLC, sole proprietor, have
my lawyer go set up my company and still have these 50 massage
parlors engaging in human trafficking? You know, if I keep my
employee size down to what the exemptions are?
I don't know exactly what the number is that would be
exempt, but say if you got under 20 employees you're exempt.
Explain the exemptions a little bit better, and what kind of
language or legislation we should craft to make sure that no
matter how big or how small you are, you can't do things like
human trafficking.
Mr. Kalman. Thank you for that question. Two things I would
say: When we say publicly traded companies, for example, are
exempt, because they already report beneficial ownership
information--or, to the extent, above 5 percent of a company's
ownership, to the Securities and Exchange Commission, so you
already know that. We don't need to duplicate that.
Ms. Moore. Right.
Mr. Kalman. The exemption that we hear from our law
enforcement folks is the opposite of what you are suggesting,
precisely because of the point you're getting at. In other
words, it's if you are big enough, not if you're small enough.
The idea is we're trying to get at the shell companies, the
actual entities that are being used as passthroughs for money.
But as Senator Whitehouse said, there's no productive economic
activity that's being used. So the exemption is at the lower
level.
Let me also say that if in fact you had a trafficking
operation going on, but the beneficial ownership information is
collected on the company, one of two things would happen.
Either you wouldn't create the company and you'd have to find
some other way to do it, or law enforcement would be able to
get access to that and not just shut down the individual
facility but in fact the entire operation.
The bills that you all are proposing we believe are a
foundational first step. You can strengthen laws, you can share
information, but unless you have this information, then the
rest of those laws are going to ring hollow. This is a first
step. It is not the end of the line. There's going to be more
bills and legislation and proposals we're going to need to
consider. But without this, we cannot make the kind of progress
you're looking to make.
Ms. Moore. OK. And Senator Whitehouse, thank you for your
indulgence. I just have one more question, and this is a crazy
question. I don't know whether you guys can answer it or not.
But our Supreme Court has weighed in about First Amendment
rights and free speech and so forth, and corporations are
people and so on. And I just wonder how any legislation would
square with Supreme Court findings, or won't that matter? The
Chamber of Commerce, are they objecting on the basis of
corporations having rights and so on?
Mr. Kalman. I have not seen that as an objection.
Ms. Moore. Good.
Mr. Kalman. I am not a lawyer, so I don't----
Ms. Moore. Right. I don't want to offer them the excuse.
[Laughter.] Thank you. I yield back.
Mr. Whitehouse. Let me recognize Senator Cardin, who I'm
particularly pleased is here as the ranking member of the
Helsinki Commission and also as the ranking member of the
Senator Committee on Foreign Relations. Thank you for being
here, Ben.
HON. BENJAMIN L. CARDIN, RANKING MEMBER, COMMISSION ON SECURITY
AND COOPERATION IN EUROPE
Mr. Cardin. Well, thank you, Chairman Whitehouse.
I came by for a couple purposes. First, I wanted to thank
Senator Whitehouse for the inspiration of this hearing under
the banner of the Helsinki Commission, because I think it's
critically important. But I also want to thank him for his
leadership in the United States Senate on transparency in so
many different areas, and dealing with the danger of what we
see here in shell companies.
Let me first share with you that a little over a year ago I
was in the Situation Room with the National Security Council,
and this was the theme. This was the theme concerning our
national security, and the need to improve our transparency
laws on corporations because we can't track what is happening.
We were very concerned at that time that it was being used for
many different purposes--one of which is to avoid the sanctions
in the United States that are very important to our foreign
policy. Another was financing corrupt activities, including
trafficking, including illegal drugs, including illegal guns.
Some of it we thought was being used to finance terrorism. And
that was one of the main focuses that we were looking at,
trying to trace money that ends up supporting terrorism. And
these shell companies were operating in a way that compromised
our national security.
So this is an extremely important subject. It's not easy to
get a handle on what we need to do in the United States, but
the weakness of our domestic laws are clearly very much in the
forefront. So it should be no surprise that the World Bank has
found that when it comes to corruption on a grand scale,
American shell companies move more illegal money than any other
country. That's a leadership that we do not want to have. So we
need to act. And, Mr. Chairman, it's more complicated because
many of these laws fall within the domains of our states, so
that when look at how corporations are structured, the Federal
Government can play a role. But in the absence of a federal
role, the states are the controlling regulatory structure, and
illegal entities can find the easiest state in which to
operate.
So what the United States needs to do is be a leader in
fighting the use of shell companies globally to hide monies
that are going to terrorists and for other illegal purposes.
But we can't do that unless we first get our own house in
order. And that's what Senator Whitehouse has been arguing and
pressing for here in the United States. I have been working on
the Senate Foreign Relations Committee with my colleagues on
both sides of the aisle to get an indicator on how well
countries are doing in fighting corruption. To me, corruption's
one of the great challenges we have on good governance
globally. It's the fuel for corruption. All you have to do is
look at Russia and how it uses corruption in order to finance
its system and its funding of different operations around the
world.
And one of those indicators is transparency, how well you
know what's going on in that country. That should be one of the
major ways to judge how well a country is fighting corruption
by how well it promotes transparency. And although we don't
have this index in place today--we do for trafficking in
persons, and every country is rated, including the United
States--we don't have that for corruption. There are outside
groups that do corruption indexes, but we don't. I hope that we
will, with this legislation passing. It's passed our committee,
it just hasn't passed the Senate yet. I'm afraid the United
States may not get a great grade, because we're not doing what
we need to do on transparency.
From the point of view of our own self-interest, but also
in the point of view of global leadership, we're behind. And
we've got to do a much more effective job. And it's not going
to be easy because of the jurisdictional differences here, and
the fact that illegal entities always try to stay one step
ahead of what we're doing. I just wanted to make those
observations. If any of the panelists want to respond, I'm more
than happy to let them do that.
What would you think is the most important thing for the
United States to do to show leadership to the global community
that we need to work together to end this type of lack of
transparency in financial operations globally? What's the one
thing that America needs to do? Who's the volunteer?
Mr. Kalman. Let me just say, I would like us to see that we
could pass either Mr. Whitehouse's bill or Ms. Moore's bill.
Mr. Cardin. That was an easy answer. They were hoping you
would say that.
Mr. Davidson. Well, I'll take something totally different,
which is that we need to get out the pillory and put it back on
the village green. We can't continue to enable this system and
to treat the professionals in our society who cater to all of
this as respectable members of our society. And I think that's
an area that could have huge leverage. And it's a deep,
cultural problem that we have also, because we don't censure
our fellow citizens when they engage in money laundering for
kleptocrats or criminals.
Mr. Cardin. I've heard that a long time, that corruption
has a cultural background. You can't accept that. You can't
accept that. Lack of transparency, there is no justification
for that. And there's no justification for corruption. You
can't say, well, that's how we do business.
Mr. Davidson. Indeed.
Mr. Cardin. Yes, sir.
Mr. O'Carroll. Just to follow up on that thought process
there of transparency, probably the biggest issue with law
enforcement is just follow the money. And that's the whole
reason for this thing, is to shade the area so that we can't do
that. I think if we do pass these bills and get some
transparency, that's the way we can start enforcing it and
start making examples of the people that are abusing our
system.
Mr. Davidson. May I just add one thing to that, Senator?
Mr. Cardin. Sure.
Mr. Davidson. I was going to put this in my brief talk
initially, but I think that passing this bill, just like the
Magnitsky Act--that had a cultural affect also, because it was
saying to everyone: This is not OK. We pass the abolishing of
anonymous companies, it's going to have ancillary effects, or
what economists like to call externalities, because no longer
will it be possible to say well, look, this is perfectly OK and
the U.S. law allows it. And then one can go on to the next
step.
Mr. Cardin. I agree. And just as a sidebar on this,
Congress passed the transparency in extractive industries
provision. \1\ And we showed international leadership. Other
countries followed. They enacted the law. And then this
Congress repealed the rule, so the United States fell behind.
Yes.
---------------------------------------------------------------------------
\1\ See Section 1504 of the Dodd-Frank Act.
---------------------------------------------------------------------------
Ms. Vicini. Well, Senator, it's not my place really to give
any advice to the United States Congress----
Mr. Cardin. We advise other countries all the time.
[Laughter.]
Ms. Vicini. [Laughs.] But in our view, maybe what is what
is good is to try to act preventively. And that's what the EU
is trying to do with this register of beneficiary owners, for
example. To try to prevent these companies from being shaped,
or these companies from making any business because if they are
not in the register they will not be able to make any business.
We haven't seen if it works yet, because the directive has just
been transposed into national legislation. We have 28 nations,
as you know, so it takes a little while. The machinery grinds
slowly.
But as an example, as we say in the EU, from the country
that I know best, is it's a country of 9 million people. And
they have estimated that 800,000 economic entities will be
registered there, in this register, just to give you a feeling
that there are not many that will be able to escape, because
you have cooperatives for buildings, you have a number of
economic entities that will fall under this register.
Mr. Cardin. Let me just conclude by also thanking
Congresswoman Moore. We've been together for a long time on the
Helsinki Commission and I thank you very much for your
leadership on this issue. It's also great to have Senator
Shaheen here as well; she has been a great member of this
Commission, and also a member of the Senator Foreign Relations
Committee.
This has our attention. It's time for us to act.
Thank you all very much.
Mr. Whitehouse. Thank you very much, Senator Cardin.
Let me start by asking Ms. Vicini, have you seen any
effects--I know that the amendments to the fourth directive
only went into effect in June, so it may not be that you've
seen any observed consequences, either out of your law
enforcement community or anywhere else. Are people actually
closing accounts and fleeing elsewhere once they have to
disclose? Is law enforcement finding new tools that they didn't
have? What have been the consequences of the directive, if you
can describe any?
Ms. Vicini. No, as you point out yourself, Senator, it's
quite early to see if there are any effects from this
particular directive. I find, though, that the due diligence
that so many of the not only financial institutions have to do
but also many other areas of the economy, there it has started
earlier. Banks and others have started to take it on, and it's
become widespread. So we see in the network of the financial
intelligence unit--the FIU.net, they have the secure network
where they exchange information on suspicious transaction
reports. And there is an enormous amount of reports coming in
there.
That poses then another problem, how do you handle all
these reports, and how much can you follow up? So that you have
law enforcement issue at the other end. But certainly this has
put the light on this area. I think there is no economic
operator today who is not aware of this, and particularly those
who are advising people, tax consultants and lawyers and
notaries and banks and those who service companies for trusts,
et cetera. They are very vigilant. And we see that they do
their due diligence and sort of bring this information into the
system.
Mr. Whitehouse. Mr. Davidson, could I ask you to speak a
little bit more about what you touched on in your testimony, I
think in a very eloquent way, which is the damage that
America's role in supporting this kleptocratic effort--the
damage that that does to our standing and to our reputation?
You described the frustration of the Ukrainian official who was
being lectured at about good governance and honesty at the same
time that it was Western banks, Western lawyers who were
facilitating the thievery and the looting of that country by
allowing those individuals to cash their assets overseas. Both
in terms of enabling foreign corruption, very often enabling
great wealth and power to people who are our enemies, and in
terms of hypocrisy to our reputation, how does this play into
America's soft power around the world?
Mr. Davidson. Well, obviously it's not good for our soft
power. And I think what we see, and what I tried to show with
the Ukrainian examples--and I see a lot of young Ukrainians--
and they are very, very distraught about all of this. I think
what we need to be concerned about is that this really spreads,
that this duplicity becomes a commonplace perception, at which
point we are no longer perceived as a place with good
governance and something to aspire to. And therefore,
authoritarianism becomes much more attractive to people in the
other countries.
Now, when I started the kleptocracy initiative at Hudson
three and a half years ago, the front was definitely not on our
shores. But the front had an ocean between the offices of
Hudson Institute and what we were trying to oppose. And then
the front moved across the street, basically. So I think a
very----
Mr. Whitehouse. Thanks to the actions of the European Union
and the United Kingdom in cleaning up their own transparency
issues, so that it jumped them to come to the United States.
Mr. Davidson. Yes, well, that's part of it, actually. I
mean, I was at a yearly conference called Offshore Alert where
the cops the robbers all congregate. But a Swiss lawyer--I
don't know if he was Swiss--but a guy with five addresses on
his card from all over the world got up and was very upset
about the fact that business was leaving Switzerland and coming
to the United States. And this wasn't good for his particular
business in question. But it's ironic that we have become the
leading haven at a time when, in all sorts of other ways, we've
been trying to push back against this rise of authoritarianism.
I mean, America's soft power is in so much trouble right
now that I think we need to focus on this really as a national
security threat. It's not about soft, soft power. We need new
words for these things, because they aren't the same as they
were 10 or 20 years ago. If we look at China, for instance, and
what they're doing, or Russia, this isn't soft power. It's
something else. And we're not very effective at resisting it.
Mr. Whitehouse. Moving over to harder power, let's say, if
we are enabling kleptocracy and corruption by providing safe
haven and refuge for the proceeds of kleptocracy and
corruption, what is the relationship between, let's say, in a
given country on another continent, a high level of kleptocracy
and corruption and security and stability in that country? Is
there an established correlation of any kind?
Mr. Davidson. Well, right now the correlation might be that
the kleptocratic, authoritarian government, since it doesn't
have to deal with any accountability vis-a-vis the people, it
can have much more concentrated wealth, not only for itself but
to build up the military. And we see this happening in, say,
Russia, where there's less and less revenue. Oil prices are
down. The sanctions do a lot more damage than some people might
think. I mean, why are they so upset about the sanctions? Why
are they so upset about Magnitsky? Why do they care? And yet,
they've been able to divert increasing sums to their military.
The same has been true in a lot of other countries.
Mr. Whitehouse. So in some cases it might actually keep the
oligarchs more secure. Presumably in other cases the wholesale
looting of the country creates resentments that eventually
create instability. Would that also not be a scenario?
Mr. Davidson. Yes, it would be nice if we had more evidence
of that.
Mr. Whitehouse. Last question for Mr. O'Carroll. We've been
talking about this at the national and international level.
When I announced this bill, I announced it in Rhode Island. And
among the folks present were Steve O'Donnell, who was then the
superintendent of the Rhode Island State Police, and Hugh
Clements, who was then the chief of police--still is the chief
of police of our capitol city, the city of Providence. And they
were there not because they were concerned about these
international issues.
They were concerned because they kept bumping up, in local
criminal investigations, against shell corporations that were
really hard for them to penetrate. So whether they were chasing
assets to try to restore stolen money to people or trying to
figure out who was behind a drug trafficking network, they were
constantly bumping up--right in Rhode Island--against these
schemes. And I'm wondering what your view is, from the Federal
Law Enforcement Officers Association, about how prevalent this
is as a local problem for local police officers trying to deal
with local crimes.
Mr. O'Carroll. It's a very good question, Senator, because,
as you're finding out now, we're finding it works best with our
federal law enforcement in cooperation with local and state law
enforcement. So we've been trying to increase our resources by
partnering with the states and locals. As an example, when I
was the inspector general of Social Security we worked very
closely with the two gentlemen that you spoke about in Rhode
Island in terms of disability fraud, because the locals know
what's going on in that community. They know who the bad
players are. And what we try to do by bringing in the federal
law enforcement is, we've got a little bit more of the global
issue on it. We've also got more resources that we can put
towards it, using the FinCEN and those types of information.
Mr. Whitehouse. But you see local law enforcement bumping
into this problem all the time and needing your help.
Mr. O'Carroll. Oh, absolutely. And what you're finding--and
I think what we've talked about here--is that it's so
insidious, in that every major crime now is somehow being tied
in with the money laundering. You know, be it drugs, be it
financial crimes, be it any of the other issues, all on local
levels that just seem to be multiplying and getting bigger. So,
yes, it's at a local level and the Federal Government's job is
to help.
Mr. Whitehouse. Mr. Kalman, I've called on everybody but
you. Do you have anything you'd care to add that I haven't
asked, or that has been provoked by the hearing? I don't want
to leave you silenced here.
Mr. Kalman. To follow up on that last point, one of the
things that we want to thank you for and encourage you on your
bill is that you do make the information available to local law
enforcement. There's two, in our minds, critical pieces that
are common in both bills that--whichever one passes--we want to
make sure stands strong. One is the definition. You have a very
strong definition in your bill, that you cannot use, or put in
a manager or nominee, or any stand-in. That definition----
Mr. Whitehouse. Kind of defeats the purpose, doesn't it?
Mr. Kalman. Exactly. You know, garbage in, garbage out. So
that is critical. And the other is access to the information.
And you give access to law enforcement up and down. So
international cooperation all the way down to the local level
with law enforcement. And you give it to the financial
institutions that we ask to help us with anti-money laundering.
Those are critical, critical pieces. And we urge you, as this
process moves forward, please hang tough and keep those
provisions strong.
Mr. Whitehouse. Yes, we will. And I appreciate it. It was
significant to me. I've been the U.S. attorney and the attorney
general of my state. And attorney general in a state where all
the criminal jurisdiction resides in the attorney general. We
don't have DAs. So I've got a really good relationship with our
law enforcement community. And they were deadly serious about,
look, this is not international crime. This is local crime.
This is affecting our cases day in and day out right here at
home. So I appreciate that.
Senator Shaheen, any closing questions or remarks?
Mrs. Shaheen. I have one more question that I'd like to
direct to Ms. Vicini, because in your testimony you talked
about the major reforms in Georgia and Ukraine that you've
seen. And the western Balkans, which have been challenged with
corruption issues, and that your policy is one of fundamentals
first. Can you explain what you mean by fundamentals first?
Ms. Vicini. Well, for countries that aspire to become
members of the European Union, we have a very thorough process
of negotiation where they must, first of all, foremost adhere
to what we call the Copenhagen criteria on human rights and
good governance and democracy, et cetera. But then also, they
have to live up to that key of the European Union, and that is
the collective European Union legislation. So, to say, they
must be, the day they enter, be able to meet all those
criteria. And that is, of course, a big leap for many
countries. What we do is, there is a process of negotiation,
but there is also a process of support to try to help, to build
that capacity. And it's a very thorough and sort of built-up
process where we support the justice system, where we support
good governance practice, in different ways. That's what I
mean.
Mrs. Shaheen. I appreciate that, especially the support
piece. I noticed a piece this week in one of the news reports
about Serbia, and that the support for joining the EU has
decreased in Serbia pretty significantly, as has their
favorability towards the United States. And support for Russia
has increased pretty dramatically. Certainly, I think that
support piece is really critical as we look at trying to keep
the western Balkans moving towards EU integration.
Ms. Vicini. That is, of course, the other part in the
middle, is that it's a very long and difficult and laborsome
process. And it requires a lot from the politicians to be able
to see this through. And it's easy to lose the population on
the way. But, yes, Serbia, there are also other reasons.
Mrs. Shaheen. Thank you. Thank you, Mr. Chairman.
Mr. Whitehouse. Well, let me thank all of the panel for
testifying, and thank the Helsinki Commission for giving us
this forum. Whether you're a cop on the beat in a local
neighborhood concerned about the ability of the criminals
you're going after to obscure their activity from you, or
whether you are an American concerned that the reputation of
our great country is being smeared by our participation in
enabling the world's kleptocrats, drug dealers, thieves, and
other global miscreants through our own system, one thing that
we do know is that if you're coming up in a corrupt country you
always have to worry.
You can steal as much as you can from everybody around you,
but you've always got to worry about the bigger fish that's
coming to steal everything that you stole. So at some point--
why the Magnitsky Act was so infuriating to the Russians--at
some point if you're going to play out your kleptocratic role,
you're going to have to jump the fence and move your ill-gotten
gains into a country that honors the rule of law. And that way,
you can hang onto what you stole against that next big fish
coming to steal it back from you. And in that way, the
countries that enjoy and espouse rule of law are now
inexcusably and constantly facilitating the worst of our
enemies by providing them shelter and providing them, to some
degree, respectability. And we have got to put an end to it.
And the testimony was terrific today. We look forward to
working with you to drive this process forward. Thank you all
very much. The hearing is concluded.
[Whereupon, at 4:02 p.m., the hearing ended.]
A P P E N D I C E S
=======================================================================
Prepared Statements
----------
Prepared Statement of Hon. Sheldon Whitehouse
This hearing will come to order. Good afternoon and thank
you all for being here. I'd like to especially thank Chairman
Wicker for working with me to hold this important hearing on
combatting crime and corruption through increased transparency.
From 2012 to 2015 the Azerbaijani government reportedly
funneled =2.5 billion from four UK-based shell companies
through an Estonian branch of a Danish bank to bribe European
politicians and Azerbaijani elites, in a scheme dubbed the
``Azerbaijani Laundromat.'' According to a report from the
Organized Crime and Corruption Project, ``the money bought
silence'' during a time when the Azerbaijani government ``threw
more than 90 human rights activists, opposition politicians,
and journalists into prison on politically motivated charges.''
The Azerbaijani Laundromat is not a unique scheme. In 2015,
the ``Panama Papers'' exposed what many in the law enforcement
and anticorruption world already knew: that corrupt officials,
tax cheats, drug traffickers, terrorists, and criminals from
around the world routinely use shell companies to hide assets
and obscure illegal activities. American's lax incorporation
laws have made the United States a favorite destination for
money laundering. Make no mistake, we are a facilitator, as
well as a target, in this racket.
With every passing day, we learn more about how Russia and
Russian kleptocrats exploit opaque business laws to hide ill-
gotten riches, bribe corrupt officials, and undermine the world
economy and democratic institutions. Heather Conley at the
Center for Strategic and International Studies wrote in her
report, ``The Kremlin Playbook,'' that corruption is ``the
lubricant'' with which the Russians operate. CSIS warns that to
fight the corruption that gives Russia this channel of
influence, ``enhancing transparency and the effectiveness of
the Western democratic tools, instruments, and institutions is
critical.''
Russian kleptocrats, foreign drug dealers, and
international tax cheats all use the same tool to launder their
ill-gotten gains and evade law enforcement: the shell
corporation. A shell corporation serves no economic purpose and
conducts no real business. Instead, these entities exist to
hold legal title to bank accounts, real estate, or other
assets, hiding the true owners.
America is a haven for those doing mischief through shell
corporations. In fact, starting a shell corporation in this
country can be easier than getting a library card. Currently,
no state requires the disclosure of beneficial owners--the real
human beings who own the companies. Instead, corporate records
can identify the owner as just another shell corporation or a
professional agent who was paid to sign the needed forms and
never speak of them again. Or a lawyer who refuses to disclose
her client, citing attorney-client privilege.
We have seen over and over how foreign governments and
criminal organizations have abused our lax incorporation laws.
LThe Iranian Government used a string of generic
businesses to obscure its ownership of a Fifth Avenue
skyscraper.
LA Mexican drug cartel used an Oklahoma
corporation to launder money through a horse farm.
LA crime syndicate set up a web of corporations in
eight states as part of a $100 million Medicare fraud scheme.
LA human trafficking ring based in Moldova hid its
crimes behind anonymous corporations in Kansas, Missouri, and
Ohio.
Then there are the Panama Papers--over 11 million documents
leaked from a Panamanian law firm. They revealed mischief
conducted through shell companies, like the 2011 purchase of a
$3 million oceanfront condo in Miami by a Brazilian politician
facing corruption charges. And in 2015, after a lengthy
investigation, the New York Times uncovered that a Russian
banker suspected of ties to organized crime purchased a nearly
$16 million condo in Manhattan's Time Warner Center.
The Financial Crimes Enforcement Network, a division of the
U.S. Treasury Department, found that 30 percent of the cash
purchases of high-end real estate by shell companies in six
major cities involved a suspicious buyer. With so many
properties serving as lavish safe-deposit boxes, the housing
supply tightens, raising costs for American families.
The crimes being hidden may be complex and the assets they
conceal may be elaborate, but the answer to the problem of
shell corporations is simple: require private corporations to
report and update their beneficial ownership information. In
fact, I have introduced legislation with Senators Grassley and
Feinstein that does just that. Senators Rubio and Wyden have
also teamed up on related legislation.
Transparency into shell corporations is not a novel idea.
As we will hear from our panel, every member of the European
Union has committed to ensuring such transparency. The United
Kingdom has already implemented its own transparency law. The
light of transparency is about to shine on criminal assets
hidden in European shell companies, which means that lots of
money will be looking for new, dark homes.
We cannot let America become that new dark home for
corruption and crime.
In the year 1630, John Winthrop told his fellow early
American settlers that, ``We must always consider that we shall
be as a city upon a hill--the eyes of all people are upon us.''
If we become the new, dark home, I fear we will risk losing our
place as that city on a hill and beacon of justice. In the
global battle of ideas, chaining our reputation to
international crime and corruption is a self-inflicted stain we
don't need.
I am glad we are holding this hearing today, and I look
forward to hearing from our distinguished witnesses.
Prepared Statement of Charles Davidson
Combating Kleptocracy with Incorporation Transparency
Acting Chairman Whitehouse, Co-Chairman Smith, and Members
of the Helsinki Commission, thank you for inviting me to
testify today. I would also like to thank Paul Massaro, staff
of the Commission, for helping to arrange this important
discussion. My name is Charles Davidson and I am the Executive
Director of the Hudson Institute's Kleptocracy Initiative,
which researches how authoritarian regimes and globalized
corruption threaten democracy, capitalism, and security.
1--Kleptocracy: The Business Model of 21st Century
Authoritarianism
Today, the most dangerous threat to our national security
is the aggression of authoritarian regimes that actively seek
to undermine our freedom and democracy, and to export
authoritarianism into the OSCE region and around the globe. And
let us not be mistaken: What is at stake is the survival of our
civilization.
These regimes have already upended the post World War II
international order via invasion and violation of treaties,
perverted a rules-based global system of relatively fair
economic exchange via intellectual property theft and corrosive
business practices, and attacked our government's computer
systems. And these regimes are sharing best practices and
increasingly behaving like an axis of evil.
The most important thing I want to bring to our attention
today: It is essential to understand that these authoritarian
regimes have ALL adopted the business model of 21st century
authoritarianism, a model whereby those who govern, usually a
very small group, family, or even individual, loot their own
country, and store the proceeds in free and democratic nations
such as ours, whose rule of law and reliable institutions serve
to protect their ill-gotten gains. That business model =
kleptocracy.
21st century authoritarianism cannot be dissociated from
kleptocracy. They have tied the knot. Where we find one, we
find the other. And the situation is serious. Authoritarian
kleptocracy has been growing, while freedom and democracy has
been in recession.
But the authoritarian/kleptocratic model has an obvious
vulnerability. Given that kleptocratic loot is stored within
our shores, we have huge leverage over this business model.
The problem is, we often don't know where they've stored
their loot, due to the ease with which one can establish
anonymity of ownership.
And we, the United States of America, are the easiest and
safest place to establish anonymity of ownership. For a superb
summary of this disgraceful situation, I recommend Kara
Scannell & Vanessa Houlder's piece in the Financial Times
published May 8th, 2016, ``US tax havens: The new
Switzerland.'' As a general proposition, as an overarching
challenge our society faces, as a fundamental existential issue
for our civilization as we know it, it should be obvious that
we cannot push back and reverse the authoritarian surge while
being the bankers, lawyers, yacht builders, luxury lifestyle
purveyors, to those who seek the destruction of freedom and
democracy.
2--Kleptocracy: A Vector of Political Decay
How is kleptocracy undermining our freedom and democracy,
promoting political decay?
When the kleptocrats come here, they bring along their
values, which are not ours. We were naive. We thought their
offspring would go to school here and become freedom and
democracy lovers. That hasn't happened.
Instead, the kleptocratic life-juice of only valuing money
and power has perverted our system. Kleptocratic regimes have
become increasingly adept at purchasing many of the less
morally vigilant members of our ``elites.'' [In Europe this is
often referred to as ``schroederization.''] And this pimping is
often done surreptitiously, via obscure ownership structures
where beneficial ownership is not known, providing among other
things plausible deniability.
3--Kleptocracy: We Incentivize it
As I said in testimony last December to the House's
Subcommittee on Europe, Eurasia, and Emerging Threats:
``Providing a safe haven for the proceeds of corruption
establishes an incentive for corrupt practices. In my view this
question of incentivization has been neglected, and is key to
understanding the overall political challenge faced in terms of
reform.''
Anonymous companies, the asset protection they provide
assured by our rule of law and reliable institutions,
incentivizes kleptocracy. We must take away the punch bowl.
And we must be aware of the struggles of those trying to
escape a kleptocratic past, and the role played by our European
allies.
Ben Judah, in ``How Offshore Finance Sank Western Soft
Power'' that appeared in The American Interest May 8th 2014,
quotes Daria Kaleniuk, head of Kiev's Anti-Corruption Action
Centre: ``What we found was that the money stolen in Ukraine
was heading into British and European tax havens and hidden
using shell companies inside the European Union. This was very
uncomfortable to find out. What we felt is the Western elites
were being hypocritical to us--preaching anti-corruption but
allowing this.''
Judah quotes Mustafa Nayem, one of the leaders of the
Maidan revolution: ``Why do they only now investigate the
hidden fortunes that were stolen and hidden in Austria and in
Switzerland? We told the Europeans and we told their embassies
a hundred times this money was stolen and hidden in their
countries. And nothing happened. Now that the regime has
fallen, they suddenly--in a matter of days--can reveal the
stolen money. But why did they not do this before? They are
guilty--guilty of leaving us alone with these thieves. They are
guilty of allowing them to plunder us.''
As per my above referenced Congressional testimony, ``As
Western diplomats struggled to impress on Kyiv's politicians
the value of the rule of law, Ukrainian elites were stashing
wealth in the West. This happens across Eurasia, where
authoritarian elites now treat London, New York, and other
Western jurisdictions as corruption services centers.''
And what of the demand for better government and democracy
in such a situation? As Francis Fukuyama said introducing
Senator Carl Levin at a conference organized by Global
Financial Integrity in 2008: ``There can be no demand for
democracy if all the rich people, if all the elites in the
country, can manage to protect their own private fortunes, they
have no reason to work with other people to resist the
government, to demand democracy, to demand accountable
government. There's no demand for less corrupt government
because everybody has taken care of themselves as an individual
and it delegitimizes democracy . . . anything that can be done
to reduce the ability of people to transfer assets and to avoid
the sovereignty of the state, it seems to me, is very
important.''
As we know from the difficulties of asset recovery efforts,
including our Department of Justice's Kleptocracy Asset
Recovery Initiative, it is often very difficult to find assets
hidden via anonymous companies.
We must stop incentivizing corrupt and kleptocratic
practices.
4--Kleptocracy: Reform, or Submit to Tyranny
As described, the anonymous ownership of assets is a dirty
secret behind the rise of authoritarianism.
We must Dramatically Curtail Secrecy in the Ownership of
Assets:
--Abolish the Anonymous Ownership of Assets in the
United States of America
--Pressure Other Jurisdictions to do The Same
Prepared Statement of Patrick P. O'Carroll
Good morning Chairman Wicker, Co-Chairman Smith and members
of the Commission.
I am the Executive Director of the Federal Law Enforcement
Officers Association, or FLEOA, which is a not-for-profit, non-
partisan, professional association which represents more than
26,000 Federal Law Enforcement officers and agents from 65
federal agencies.
FLEOA applauds your Commission's focus on incorporation
transparency, the prevention of money laundering, the financing
of criminal enterprises, and terrorism.
FLEOA agrees with the report of the Financial Fraud Task
Force and its findings that the United States has many laudable
anti-money laundering efforts--but also has serious gaps in law
enforcement's ability to identify the owners of companies,
leaving our financial system vulnerable to dirty money.
Recently, one of our New York Secret Service agent members
began a routine check forgery investigation into a stolen check
being deposited into a bank account.
The agent examined the available bank information and found
that the account was for a Florida business with a single
owner, NO business plan filed and NO apparent product or
service.
Further investigation utilizing court orders and subpoenas
revealed multi-national wires and transfers involving millions
of dollars passing through this account.
The agent enlisted the assistance of the Treasury
Department and identified 80 sub-companies and accounts
transferring about $1 billion dollars between them.
This is a classic example of money laundering with ties to
financial crime, narcotics trafficking and terrorism. Yet
because of the insidious protections afforded by shell
corporations, only one person was arrested and the proceeds of
one account seized.
The Financial Crimes Enforcement Network or FINCEN is a US
Treasury Bureau whose mission is to safeguard the financial
system from illicit use, combat money laundering, and promote
national security.
FINCEN has found that shell companies--which are business
entities without active business or significant assets--are an
attractive vehicle for those seeking to launder money or
conduct illicit activities, both domestically and
internationally.
FINCEN also believes that these shell companies have been
used domestically as vehicles for financial crimes with credit
cards, purchasing fraud and fraudulent loans.
In addition, FINCEN cautions that international wire
transfers allow for the movement of billions of dollars by
unknown owners, which can facilitate money laundering and
terrorist activities.
New York Representatives Carolyn Maloney and Peter King,
along with 9 co-sponsors, have introduced House Bill 3089,
``The Corporate Transparency Act of 2017.'' In introducing the
bill, Congresswoman Maloney stated, ``Anonymous and shell
companies have become the preferred vehicle for money
launderers, criminal organizations, and terrorist groups,
because they can't be traced back to their real owners and the
U.S. Is one of the easiest places in the world to set up
anonymous shell companies.''
Congressman King also said, ``The Act targets this problem
by requiring a company that has the characteristics of a shell
corporation to disclose who benefits from the company's
operations and makes that information available to law
enforcement.'' The Corporate Transparency Act of 2017 has
subsequently been introduced in the Senate by Senators Wyden
and Rubio. FLEOA strongly endorses this bill. We are also
supportive of the TITLE Act, introduced by Senators Whitehouse,
Grassley, and Feinstein. FLEOA strongly believes that
legislation requiring companies to disclose their purpose,
actual ownership, and appropriate contact information would
assist law enforcement in identifying the criminal and
terrorist organizations that are exploiting this weakness.
Only with full transparency can we prevent the scourge of
illicit funding provided by the anonymity of shell
corporations.
Thank you for this opportunity to testify today and I will
be happy to answer any of your questions.
Prepared Statement of Caroline Vicini
Acknowledgement and Introduction
Chairman Wicker, Co-Chairman Smith, Ranking Members Cardin
and Hastings, Commissioners, it is my privilege to have this
opportunity to present to you today. I'm here to exchange views
and to provide an overview of the European Union's response to
money laundering--in particular, in terms of transparency of
beneficial ownership information.
We live in a world where terrorist groups and organised
crime organisations expand the scope and complexity of their
illicit activities. Their corruption exploits the freedoms and
benefits offered by globalisation and the huge number of
financial transactions processed every day by a diverse number
of financial actors.
Across the globe, open and serviced shell companies,
trusts, private foundations, and other entities serve as
vehicles through which money flows. These complex structures
are composed of companies with unknown owners and
beneficiaries, serviced by multiple bank accounts housed in
numerous banks situated in banks in jurisdictions with strong
bank secrecy legislation that are unlikely to cooperate with
foreign authorities.
The European Union is at the forefront of global efforts to
make corporate transparency effective to combat global
financial crime, including corruption. We are seeing success.
Europe's response is centred around three key elements:
I. the current EU rules in force;
II. proposals to reinforce these rules; and
III. international cooperation.
Current EU Rules in Force--the 4th Anti-money Laundering Directive
The EU has accomplished much in terms of the traceability
of financial transactions through a series of money laundering
Directives.
The landmark ``Fourth Anti-Money Laundering Directive''
entered into force in June this year, some 20 years after the
first such directive.
Banks should, of course, possess information about a
customer--Mr. or Mrs. Smith--before they open a bank account.
However, this situation is much more difficult when the bank
does not deal with the customer directly, rather with Company A
or Trust B.
In these cases, if the bank is not able to identify who is
behind a company or trust, the ability to collect relevant
information such as the source of funds or the reason why the
account is opened, is severely compromised. The bank needs to
be sure that the company or the trust is not a shell for
disguising illicit activities.
This is why the Fourth Directive foresees identifying the
beneficial owners of a company or a trust mandatory at the
start of every new business relationship.
But that is not all. The directive requires this
information to be recorded centrally on a register or data
retrieval system in the EU Member States.
The purpose is fundamental: to allow swift and efficient
access to important information by banks--that also allows them
to fulfil their legal obligations--but also access by all
national competent authorities that play a role in preventing
money laundering and terrorist financing. This includes
Financial Intelligence Units [equivalent to the US FinCEN], for
instance. The EU Member States are currently setting up their
registers.
Proposals to Reinforce these Rules
The EU has faced heinous terrorist attacks in recent years.
While less dramatic, but equally telling, there was a strong
public reaction to the ``Panama papers'' scandal.
In these circumstances, the European Commission took
further steps in July 2016 with new proposal to present
targeted measures to strengthen the Fourth directive. The
European Commission proposed:
I. the interconnection of the central registers of
beneficial ownership information: Given the increasing
number of cross-border financial transactions,
authorities would be able to consult registers and
access information across the Member States much more
easily; and
II. public access to beneficial ownership information
for `for-profit' companies and trusts: Corporate
structures would be incentivised to prove that they run
a clean business. We are not talking about unfettered
access to information, rather granted in full respect
of the right to privacy. Sensitive information such as
family trust structures would be excluded from public
access.
The international context
The promotion of reforms--good governance, democracy, the
rule of law and human rights, and public administration
reform--is integral to the European Union's approach to both
the Western Balkans and the Eastern Partnership countries.
Countering corruption and organised crime are significant
elements in our approach. Considerable direct assistance is
provided at the national and the regional level.
We have seen major reforms in Georgia and Ukraine on the
back of EU support. And in the Western Balkans--as potential
members of the European Union--our policy is one of
fundamentals first.
But the European Union is not alone. We share
responsibility with the United States, complementing each other
as key players in this joint fight. We recognise the commitment
of the United States underpinned by its strong enforcement
capabilities.
Furthermore, the European Commission, some EU Member States
and the United States are vocal members of the Financial Action
Task Force [FATF].
Conclusion
Honourable members, to conclude, I would like to reiterate
that the success of a policy to fight against money laundering
and terrorist financing is based on complementary policies,
both preventative and enforcement.
Strong beneficial ownership requirements are not the
panacea, but a key element if we want to address both money
laundering and terrorist financing risks.
The United States and the European Union must continue to
support the successes we have achieved together on the
international stage, driving up standards. We must continue to
speak with the same voice to convince our partners that there
is still room of improvement.
Prepared Statement of Gary Kalman
Chairman Wicker, Co-Chairman Smith, Ranking Members Cardin
and Hastings, and Commissioners of the Helsinki Commission,
thank you for holding this important hearing.
On behalf of the Financial Accountability and Corporate
Transparency [FACT] Coalition and our member organizations, I
appreciate the opportunity to talk about a foundational reform
in the global anti-corruption movement and the nexus between
secrecy jurisdictions, corruption, human rights, and national
security.
The FACT Coalition is a non-partisan alliance of more than
100 state, national, and international organizations working to
combat the harmful impacts of corrupt financial practices. \1\
---------------------------------------------------------------------------
\1\ The FACT Coalition website: https://thefactcoalition.org/
---------------------------------------------------------------------------
The Coalition first formed in 2011, but I came aboard just
last year on April 11. I remember the date because it was
roughly one week after the release of the Panama Papers. It was
an interesting start.
The Panama Papers shed light on the corruption facilitated
by anonymous companies. The details of how these entities were
established and some of the particular individuals involved
made headlines around the world. But, to me, it was the sheer
magnitude of the disclosures that proved the most shocking and
enlightening. Eleven million documents, 214,000 companies, 140
politicians from 50 countries--all from just one law firm in
one country. \2\
---------------------------------------------------------------------------
\2\ Independent Consortium of Investigative Journalists, https://
panamapapers.icij.org/20160403-panama-papers-global-overview.html
---------------------------------------------------------------------------
The fallout was widespread. The revelations led to the
resignation of Iceland's prime minister, and the exploits of
Russian President Vladimir Putin's associates were well
documented in the media.
The Panama Papers exposed the direct connection between
corrupt and criminal practices and the secrecy that affords
kleptocrats and others a vehicle to hide the money, fund
illicit activity, and move it around the globe with impunity.
This hearing is an important opportunity to further explore
that link.
What Is an Anonymous Company?
When people create companies, they aren't required to
disclose who really profits from their existence or controls
their activities--the actual ``beneficial owners'' of the
business. Instead, individuals who benefit can conceal their
identity by using front people, or ``nominees,'' to represent
the company. For instance, the real owner's attorney can file
paperwork under his or her own name even though the attorney
has no control or economic stake in the company. Finding
nominees is not terribly difficult--there are corporations
whose entire business is to file paperwork and stand in for
company owners.
The Dangers of Anonymous Companies
Anonymous companies are the vehicle of choice for
kleptocrats and others who need to launder money. These
individuals are then able to use the funds to stay in power and
engage in a host of harmful actions--including undermining
emerging democratic movements, upsetting global commerce,
engaging in human rights abuses, and threatening our national
security.
Undermining Democratic Movements
Former soviet military officer and notorious arms dealer,
Viktor Bout, created twelve anonymous U.S. companies in
Delaware, Florida, and Texas. Before he was finally brought to
justice, he reportedly supplied weapons to the Taliban,
Liberia's Charles Taylor, Libya's Muammar Gaddafi, and the
FARC, among others. \3\
---------------------------------------------------------------------------
\3\ Global Witness, ``The Great Rip-Off,'' September 25, 2014,
https://www.globalwitness.org/documents/11789/
the%20great%20rip%20off.pdf.
---------------------------------------------------------------------------
Upsetting Global Commerce
Kleptocrats are often engaged in transnational crime,
taking money from their own countries and hiding it in others.
Researchers at Global Financial Integrity, a Coalition member,
in a March 2017 report, estimated the direct financial cost of
transnational crime.
`` . . . globally the business of transnational crime
is valued at an average of $1.6 trillion to $2.2
trillion annually. The study evaluates the overall size
of criminal markets in 11 categories: the trafficking
of drugs, arms, humans, human organs, and cultural
property; counterfeiting, illegal wildlife crime,
illegal fishing, illegal logging, illegal mining, and
crude oil theft.'' \4\
---------------------------------------------------------------------------
\4\ Transnational Crime and the Developing World, Global Financial
Integrity, 2017, http://www.gfintegrity.org/report/transnational-crime-
and-the-developing-world/
Recent studies have estimated the scale of money laundering
to be in the range of 3 to 5 % of global GDP. \5\
---------------------------------------------------------------------------
\5\ Cassara, John A. Countering International Money Laundering.
FACT Coalition, 2017, Countering International Money Laundering,
thefactcoalition.org/wp-content/uploads/2017/08/Countering-
International-Money-Laundering-Report-August-2017-FINAL.pdf.
---------------------------------------------------------------------------
Traffickers in counterfeit and other illicit goods and
services hide behind secret corporate entities and make it more
costly and difficult for legitimate businesses to engage in
global commerce.
This cost is why several multinational corporations have
written in support of bills in Congress to address the issue
and provide world leadership. In a recent letter signed by the
Chief Executive Officers of Allianz, The Dow Chemical Group,
Kering Group, Salesforce, Unilever, and Virgin Group, they
wrote:
``When the true owners of companies put their own name
on corporate formation papers, it increases integrity
in the system and provides a higher level of confidence
when managing risk, developing supply chains and
allocating capital. If ownership information is on
record, we can have greater reputational and legal
certainty in our dealings with third parties,
protecting our ability to enforce contracts and
safeguard our investments.'' \6\
---------------------------------------------------------------------------
\6\ Letter dated July 11, 2017, http://bteam.org/announcements/u-
s-government-action-crucial-to-fighting-corruption/
These CEOs are not alone. In fact, according to Ernst &
Young's Fiscal Year 2016 Global Fraud Survey, 91 percent of
senior executives believe it is important to know the ultimate
owner of the entities with which you do business. \7\
---------------------------------------------------------------------------
\7\ Ernst & Young, ``EY--Global Fraud Survey 2016,'' April 18,
2016, https://go.ey.com/2vGBTLN.
---------------------------------------------------------------------------
Disrupting U.S. Markets
Increasingly there are stories of secret owners bidding up
prices on properties and then using them as ``banks'' rather
than homes. Not only is our real estate market a magnet for
kleptocrats but the secrecy potentially fuels a loss of
affordable housing in growing numbers of communities due to
skyrocketing real estate prices and vastly inflated markets.
LIn Manhattan, eight blocks between Lenox Hill and
Central Park are nearly 40 percent unoccupied, and on the Upper
East Side, more than a quarter of the properties are owned-but-
vacant. Middle-income families are being priced out by those
looking to hide assets. \8\
---------------------------------------------------------------------------
\8\ Joseph Lawler. ``Money Laundering is Shaping US Cities,''
Washington Examiner, March 27, 2017, http://washex.am/2mVy5BJ.
---------------------------------------------------------------------------
LIn San Francisco, the South Beach neighborhood is
one-fifth unoccupied, and, in the competitive California
housing market, the rent crisis is affecting middle-income
families. \9\
---------------------------------------------------------------------------
\9\ Ibid
---------------------------------------------------------------------------
LA 2016 story in The Miami Herald about the impact
of offshore money on the local housing market found that, `` .
. . the boom also sent home prices soaring beyond the reach of
many working- and middle-class families. Locals trying to buy
homes with mortgages can't compete with foreign buyers flush
with cash and willing to pay the list price or more.'' \10\
---------------------------------------------------------------------------
\10\ Nicholas Nehamas. ``How secret offshore money helps fuel
Miami's luxury real-estate boom.'' The Miami Herald. April 3, 2016.
http://www.miamiherald.com/news/business/real-estate-news/
article69248462.html.
---------------------------------------------------------------------------
Abusing Human Rights
Anonymous companies regularly serve as fronts for those
engaged in crimes that involve human rights abuses. According
to Global Witness, also a Coalition member, ``A Moldovan gang
used anonymous companies from Kansas, Missouri and Ohio to
trick victims from overseas in a $6 million human trafficking
scheme.'' \11\
---------------------------------------------------------------------------
\11\ Global Witness, ``The Great Rip-Off'', September 25, 2014,
https://www.globalwitness.org/documents/11789/
the%20great%20rip%20off.pdf.
---------------------------------------------------------------------------
Stories like that convinced Polaris, one of the leading
U.S.-based organizations fighting human trafficking, to join
the call to crack down on anonymous companies. Recognizing the
role of anonymous companies in trafficking and the difficulty
of combatting trafficking schemes if law enforcement cannot
``follow the money'' to specific individuals profiting from the
wrongdoing, Polaris wrote the following:
``In 2016, [we] analyzed public information to identify
human trafficking occurring in businesses fronting as
massage parlors in Tampa, Honolulu, Houston, San
Francisco, Albany, Columbus, Oklahoma City, and Fairfax
County, VA. The inability to identify beneficial
ownership was a recurring challenge in every location .
. . In order to ensure accountability for human
trafficking, Congress must pass legislation that
requires corporations and LLCs to disclose their
beneficial owners, thereby guaranteeing that law
enforcement has access to this information. Until
police and prosecutors can identify the individuals
operating illicit massage businesses, criminals engaged
in human trafficking will continue acting with impunity
across the United States.'' \12\
---------------------------------------------------------------------------
\12\ Fact sheet, Polaris, 2017 https://thefactcoalition.org/wp-
content/uploads/2017/08/Polaris-Anonymous-Companies-Fact-Sheet-10-17-
2016-FINAL.pdf
Companies with hidden owners currently play a powerful role
in fueling international crimes--posing huge costs for law
enforcement and civil society.
Threatening our National Security
The threats go beyond the commercial and criminal spheres;
they also threaten our national security. The stories of
anonymous companies obtaining contracts with the Department of
Defense are numerous and disturbing. I submit for the record a
Global Witness report called Hidden Menace, which identifies,
in unsettling detail, the role of secrecy in endangering our
troops and undermining U.S. security. One example details how
an Afghan company that was contracted to supply our troops was
secretly owned by the Taliban, which used the profits to fund
weapons to attack our soldiers. A second troubling report,
authored by the U.S. Government Accountability Office, details
how corporations with hidden owners are leasing office space to
sensitive U.S. military and law enforcement agencies, a
situation rife with risks that shouldn't be allowed to
continue. \13\
---------------------------------------------------------------------------
\13\ U.S. Government Accountability Office. Federal Real Property:
GSA Should Inform Tenant Agencies When Leasing High-Security Space from
Foreign Owners GAO-17-195: Published: Jan 3, 2017. Publicly Released:
Jan 30, 2017. http://www.gao.gov/assets/690/681883.pdf
---------------------------------------------------------------------------
As Congress considers new economic sanctions to counter
North Korean threats, the Commissioners should take note of a
U.S. Department of Justice case closed earlier this year which
confirmed that Iran evaded economic sanctions in part by
reaping millions of dollars annually from a New York-based
anonymous company with investments in Manhattan real estate.
\14\
---------------------------------------------------------------------------
\14\ Press Release, U.S. Attorney's Office, Southern District of
New York, 2017, https://www.justice.gov/usao-sdny/pr/acting-manhattan-
us-attorney-announces-historic-jury-verdict-finding-forfeiture-midtown
---------------------------------------------------------------------------
Current Lack of Incorporation Transparency
To the extent that these examples illustrate the depth of
the problem, it is important to acknowledge that we've often
been able to pierce the veil of corporate secrecy through luck
or leaks. That must not continue to be a substitute for
critical information on criminal enterprises.
In a report written by former U.S. Treasury Special Agent
John Casarra for the FACT Coalition, he noted that in efforts
to reclaim laundered money, we are currently ``a decimal point
away from total failure.'' \15\ His analysis is based on
estimates that globally we catch only about 0.1 percent of
laundered money. While kleptocrats and other criminal
enterprises have updated their tools for the 21st century by
utilizing anonymous companies, we have not updated our laws to
catch them.
---------------------------------------------------------------------------
\15\ John Cassara, ``Countering International Money Laundering,''
The FACT Coalition, August 2017, https://thefactcoalition.org/
countering-international-money-laundering?utm_medium=policy-analysis/
reports
---------------------------------------------------------------------------
In its 2016 mutual evaluation, the Financial Action Task
Force [FATF] found that the U.S. anti-money laundering
framework has ``significant regulatory gaps'' and that the
``lack of timely access to accurate and current beneficial
ownership information [BO] remains one of the fundamental gaps
in the U.S. context.'' \16\
---------------------------------------------------------------------------
\16\ Mutual Evaluation Report, Financial Action Task Force, 2016,
http://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-United-
States-2016.pdf
---------------------------------------------------------------------------
A 2014 report, by academics from the University of Texas-
Austin, Brigham Young University, and Griffiths University,
found that the United States is the easiest place in the world
to establish an anonymous company. \17\
---------------------------------------------------------------------------
\17\ Findley, Michael et al. ``Global Shell Games: Experiments in
Transnational Relations, Crime, and Terrorism.'' Cambridge University
Press [March 24, 2014], Page 74. http://bit.ly/2uTLptQ.
---------------------------------------------------------------------------
Progress on Incorporation Transparency
There is some meaningful progress being made to end the
abuse of anonymous companies. As you have heard, there is
progress in the European Union.
In the Ukraine, a nation whose democracy has been
compromised by kleptocracy, a generation of corrupt leadership
has utilized anonymous companies to hide money and undermine
economic and social progress. A new generation of public
officials has identified incorporation transparency as a
critical first step for lifting the veil of secrecy. The
country has begun collecting beneficial ownership information
and posting it online. The old guard is pushing back, but there
is some hope today in a country that has been something of a
poster child for corruption fueled by secrecy for decades.
The global trend is toward transparency.
Here in the United States, multiple bills have been
introduced in this Congress to clamp down on corporate secrecy.
I want to thank members of this Commission who have sponsored
that legislation, including Senators Whitehouse and Rubio and
Representatives Smith and Moore. The True Incorporation
Transparency for Law Enforcement Act, or TITLE Act, S. 1454,
and the Corporate Transparency Act of 2017, S. 1717 and H.R.
3068, would each directly address the problem we are discussing
today.
The bills use different mechanisms to collect information,
but each includes the critical provisions needed to identify
corporate owners and provide access to that information to all
law enforcement and financial institutions engaged in anti-
money laundering activities. All of the bills define a
beneficial owner as ``a natural person who, directly or
indirectly exercises substantial control over a corporation or
limited liability company or has a substantial interest in or
receives substantial economic benefits from the assets of a
corporation or limited liability company.''
That definition, with its focus on natural persons, is
important to prevent the shell games in which one company owns
another which, in turn, owns another and so on--all to
obfuscate the name of the individuals who exercise ultimate
control. The bills would also prevent naming managers or
nominee directors in lieu of the true owners. Mossack Fonseca,
the now infamous Panamanian law firm, employed a woman who was
named as the director for approximately 20,000 companies. \18\
And on YouTube, a video shows a journalist establishing a
company in Delaware for her cat, Suki. \19\ While Delaware has
become notorious as a U.S. secrecy jurisdiction, it should be
noted that not one of our states currently collects beneficial
ownership information.
---------------------------------------------------------------------------
\18\ ``Dirty Little Secrets.'' Dirty Little Secrets, Fusion,
fusion.net/story/292198/dirty-little-secrets-panama-papers-
documentary/.
\19\ Video: Watch how easy it is to start an anonymous shell
company for your cat, Fusion TV, 2016, http://fusion.net/story/287187/
delaware-cats-shell-company/
---------------------------------------------------------------------------
The value in collecting this information is one of the
reasons that those asked to assist in U.S. anti-money
laundering efforts are calling for legislation. The Clearing
House, which represents the largest banks in the country, has
sent a letter urging enactment of the legislation, stating:
``Our member institutions take their obligations under
the Bank Secrecy Act, USA PATRIOT Act and other
applicable Federal and state laws and regulations very
seriously and are committed to combating money
laundering and terrorist financing and other criminal
activities. Your legislation would assist them in these
efforts, as it would serve as a source of beneficial
ownership information when conducting due diligence on
their customers.'' \20\
---------------------------------------------------------------------------
\20\ Letter dated August 3, 2017, https://thefactcoalition.org/wp-
content/uploads/2017/08/TCH-BAFT-IIB-IIF-2017-Support-Letter-HR3089.pdf
In addition, the Independent Community Bankers Association,
National Association of Federally-Insured Credit Unions, and
Credit Union National Association have all indicated support
for the legislation to require the collection of beneficial
ownership information.
In a separate but related effort to combat anonymous
corporations active in U.S. real estate markets, the U.S.
Department of Treasury's Financial Crime Enforcement Network
[FinCEN] recently extended and expanded an initiative known as
Geographic Targeting Orders [GTOs]. The GTOs require the
collection of beneficial ownership information for certain
cash-financed, high-end real estate transactions. The GTOs now
apply to the following metropolitan areas including: Bexar
County, Texas; Miami-Dade, Broward, and Palm Beach Counties in
Florida; Brooklyn, Queens, Staten Island, Manhattan, and the
Bronx in New York City; the counties of San Diego, Los Angeles,
San Francisco, San Mateo, and Santa Clara in California; and
the latest addition, the city and county of Honolulu, Hawaii.
\21\
---------------------------------------------------------------------------
\21\ ``FinCEN Targets Shell Companies Purchasing Luxury Properties
in Seven Major Metropolitan Areas.'' 22 Aug. 2017, www.fincen.gov/news/
news-releases/fincen-targets-shell-companies-purchasing-luxury-
properties-seven-major.
---------------------------------------------------------------------------
In renewing the GTOs in August, FinCEN noted that, in 30
percent of the real estate transactions covered by the rule,
the purchaser was someone who had a suspicious activity report
filed on them. Prior to the GTOs, we would have had no idea who
was behind the purchases.
The early results of the GTOs suggest that the collection
of beneficial ownership information is a necessary reform that
opens the door to additional changes to crackdown on
kleptocrats and others engaged in illicit financing.
We are seeing progress globally, in congress, in the
administration, in the private sector, and continued support
from a wide range of anti-corruption, human rights, and other
organizations.
Conclusion
Kleptocrats and other criminals use anonymous shell
companies to hide the money they steal and maintain the power
they hold. The total amounts of money are impossible to know
but what we can estimate runs into the trillions. The harm
caused is widespread--impacting national security, human
rights, and economic and political stability.
There are many reforms we need to make, such as better
coordination and information sharing among law enforcement
agencies, among others. Congress recently took a critically
important step when they adopted the Global Magnitsky Act to
more effectively target individuals engaged in human rights
abuses and grand corruption. But we must lift the veil of
secrecy. We must end the use and abuse of anonymous companies.
If we are unable to identify the true owners of the front
companies used to launder money, it will undermine our ability
to identify those responsible for the underlying crimes and our
ability to enforce any additional laws we adopt or strengthen.
[all]
This is an official publication of the
Commission on Security and
Cooperation in Europe.
* * *
This publication is intended to document
developments and trends in participating
States of the Organization for Security
and Cooperation in Europe [OSCE].
* * *
All Commission publications may be freely
reproduced, in any form, with appropriate
credit. The Commission encourages
the widest possible dissemination
of its publications.
* * *
http://www.csce.gov @HelsinkiComm
The Commission's Web site provides
access to the latest press releases
and reports, as well as hearings and
briefings. Using the Commission's electronic
subscription service, readers are able
to receive press releases, articles,
and other materials by topic or countries
of particular interest.
Please subscribe today.