New laundering law cracks secrecy of shell companies
MIAMI — For years as a federal prosecutor in New York, Daniel Alonso led teams that had to search through a maze of anonymously owned corporate entities to expose criminal activity.
“It required all kinds of shoe-leather investigating to identify who was really behind these shell companies,” recalled Alonso. “You’d have to subpoena bank records and lawyers, as well as human sources, and even then you frequently hit a dead end.”
Now, thanks to a watershed overhaul of U.S. money laundering laws, locating the proceeds from foreign bribery, drug trafficking and financing for terrorists could be as easy as a few keystrokes.
The new legislation quietly passed by Congress last month after a decadelong fight is the most sweeping banking reform of its kind since passage of the Patriot Act, in the aftermath of the Sept. 11, 2001, terrorist attacks.
For the first time, shell companies will be required to provide the names of their owners or face stiff penalties and jail sentences. The information will be stored in a confidential database accessible to federal law enforcement and shared with banks who are often unwitting accomplices to international corruption.
The Corporate Transparency Act was tucked into a defense spending bill first vetoed by President Donald Trump and then overridden by Congress on Jan. 1.
It was introduced by Rep. Carolyn Maloney, a New York Democrat, in 2010 and early on faced opposition from banks and business groups worried about red tape as well as states such as Delaware and Wyoming, which reap important revenues from the registration every year in the U.S. of nearly 2 million corporations and limited liability companies.
But a string of international financial scandals involving soccer’s governing body FIFA and the 1MDB development bank from Malaysia, as well as the leaking of the so-called Panama Papers, eventually softened criticism by revealing the prominent role played by secretive shell companies in hiding the proceeds from illicit activity.
The new law seeks to strengthen controls by creating a registry managed by the Treasury Department that will contain the names of the true owners of both domestically created shell companies as well as foreign ones conducting business in the U.S.
“Congress was late to acknowledge that secrecy is alive and well in the United States,” said David P. Weber, a former U.S. Treasury investigator who was one of two experts to review the Panama Papers before publication.
But nobody expects crime and corruption to stop. One weakness of the law, Weber says, is that it will push crimes further into the darkness, away from the U.S. to less reputable jurisdictions where secrecy remains.
“In many ways,” he said, “this is like a multimillion-dollar game of whacka-mole.”