Shell com­pa­nies un­der­mine sanc­tions against North Korea

Austin American-Statesman - - VIEWPOINTS -

On Aug. 5, the United Na­tions Se­cu­rity Coun­cil voted to pass pow­er­ful new sanc­tions on North Korea. If suc­cess­fully en­forced, the new sanc­tions could deal a sig­nif­i­cant blow to the regime, cut­ting off much of its for­eign cur­rency sup­ply.

But if sanc­tions are go­ing to have any ef­fect on the North Korean regime, we can­not con­tinue to leave open crit­i­cal loop­holes that al­low them to laun­der money and get around the sanc­tions.

We un­der­mine our own in­ter­ests by mak­ing it harder to en­force sanc­tions as we al­low il­licit ac­tors to hide be­hind anony­mous shell com­pa­nies. It is pos­si­ble to cre­ate a secret com­pany in most U.S. states where the true name of the ben­e­fi­cial owner of the com­pany is hid­den from law en­force­ment, banks and peo­ple with whom the com­pany does busi­ness. That com­pany is then able to open bank ac­counts, buy prop­erty and gen­er­ally do busi­ness as a le­gal U.S. en­tity, re­gard­less of who the real owner is.

This prob­lem is not the­o­ret­i­cal. Be­gin­ning in 1989, Assa Corp., a shell com­pany in­cor­po­rated in New York, owned a 40 per­cent stake of the 36-floor New York City sky­scraper at 650 Fifth Ave. Assa was it­self owned by Bank Melli, the sta­te­owned bank of Iran.

For nearly two decades, Assa fun­neled mil­lions of dol­lars of hard U.S. cur­rency back to Iran de­spite nu­mer­ous sanc­tions. The re­main­ing as­sets, val­ued at a $1 bil­lion, were re­cently awarded by a jury to vic­tims of ter­ror­ism and the 9/11 at­tacks.

Re­search au­thored by one of us found that the U.S. is the sec­ond-eas­i­est place in the world to in­cor­po­rate an anony­mous shell com­pany.

We posed as fic­ti­tious con­sul­tants work­ing on be­half of shady clients mod­eled on re­al­world ter­ror­ism and cor­rup­tion cases. We asked in­cor­po­ra­tion providers to cre­ate anony­mous shell com­pa­nies de­spite ob­vi­ous warn­ing sig­nals.

We found it fright­en­ingly easy to cre­ate a U.S. shell cor­po­ra­tion. For ex­am­ple, one cor­po­rate ser­vice provider in Florida re­sponded to an in­quiry with the fol­low­ing: “[Y]our stated pur­pose could well be a front for fund­ing ter­ror­ism . ... I wouldn’t even con­sider do­ing that for less [than] 5k a month . ... If you are work­ing with less than se­ri­ous money, don’t waste any­body’s time here.” This is un­ac­cept­able. Our lo­cal rep­re­sen­ta­tives can do some­thing about anony­mous shell com­pa­nies. The Cor­po­rate Trans­parency Act is a bi­par­ti­san, com­pro­mise bill that would re­quire all com­pa­nies cre­ated in the United States to col­lect in­for­ma­tion on their true own­ers — and make that in­for­ma­tion avail­able to po­lice, pros­e­cu­tors and fi­nan­cial in­sti­tu­tions to as­sist them with their anti-money laun­der­ing re­spon­si­bil­i­ties.

U.S. Rep. Roger Wil­liams is a key vote on the House Fi­nan­cial Ser­vices com­mit­tee, where the com­mit­tee chair­man, U.S. Rep. Jeb Hen­sar­ling, has in­di­cated that this is­sue is a pri­or­ity. We im­plore Wil­liams to sup­port the bill.

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