US passes ‘historic’ anti-corruption law that effectively bans anonymous shell companies

The new law prevents criminals from hiding money in US banks 

Richard Hall
Friday 01 January 2021 22:15 GMT
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The United States has effectively banned anonymous shell companies from operating in the country with the passing of a new anti-corruption law described by campaigners as “historic”.

The new legislation was included in the annual National Defense Authorization Act, which allocates funds to the US military, and was passed by veto-proof majority in Congress on Friday.

Under the new rules, companies will be required to provide “beneficial ownership” information to the treasury department’s Financial Crimes Enforcement Unit. Anonymous companies, which can be used to hide funds illicitly obtained by criminals and corrupt foreign officials, would be effectively banned.  

Transparency International, an advocacy group that worked with lawmakers to craft the bill, called the new law “historic” and “one of the most important anti-corruption measures ever passed by the US Congress.”

“It’s a huge step forward in fighting illicit finance at home and around the globe,” said Gary Kalman, the group’s US director. “Simply put, corporate transparency means it will be harder for corrupt leaders and other criminals to hide and move stolen money through secretly-owned corporations.”

Anti-corruption campaigners have lobbied for years to close loopholes that allow criminals to hide money in the US. Last year, the US overtook Switzerland in a global ranking of financial secrecy hotspots. It currently ranks second in the world in the Tax Justice Network’s Financial Secrecy Index 2020, behind only the Cayman Islands.  

Corporate secrecy rules have previously made it possible for anyone to create an anonymous shell company, in which they could hide enormous sums of money without being identifiable. Corrupt foreign leaders, cartel bosses, and criminals have all made use of lax US laws to hide their ill-gotten gains.

That will now change. The new Corporate Transparency Act, passed with bipartisan support, requires anyone forming a company in the US to provide their name, date of birth, unique identification number and other information. That information can be shared with law enforcement —including those acting on behalf of a foreign law enforcement agency — as well as for national security and intelligence purposes.

The act also makes “deliberate false statements or willful evasion of its requirements” a federal crime, punishable by up to three years in jail.

Larger companies that employ more than 20 people, have revenues above $5 million and a physical presence in the US, are exempt from the act. Churches, charities and other non-profits are also exempt. 

Casey Michel, author of the forthcoming book about money laundering called ‘American Kleptocracy’, said the bill was a victory for anti-corruption efforts not just in the US, but around the world.

“It's difficult to overstate the importance of today's legislation,” he told The Independent, describing it as “the most significant anti-money laundering move the US has taken in decades, and potentially ever.”

“Oligarchs and kleptocrats, gun-runners and cartel heads, wildlife poachers and human traffickers — anyone with a bit of dirty money burning holes in their pocket, really — can no longer turn to American shell companies for their money laundering needs,” he added.

Mr Michel, whose book is due to be published later this year, said that the use of anonymous shell companies in the US had acted as the “building blocks” for corrupt networks around the world, which were able to hide dirty money from investigators and journalists.

“For years, the US — thanks especially to states like Delaware, Nevada, and Wyoming — has acted as the world's biggest provider of anonymous shell companies. Now, thanks to the NDAA's passage, that reality is a thing of the past,” he said.

Donald Trump had originally vetoed the $740bn defence bill containing the anti-corruption measures. He listed among his objections a requirement for the US military to rename bases named after Confederate leaders and the refusal of lawmakers to include a repeal of a law that provides immunity to social media platforms for content posted on their sites. 

He was opposed by his own party colleagues as Republicans joined Democrats to pass the bill by the two-thirds majority required to override the president’s veto.  

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