When the United States Senate voted 81 to 13 today to override President Donald Trump’s veto and enact a must-pass annual $741 million dollar defense act into law, it didn’t just follow the House’s overwhelming vote to rebuke the lame duck president: it banned anonymous shell companies in the United States.
United States law now requires anyone registers a new company to disclose the name, address, and date of birth of the real owners, along with an identification number for each person. Corporations and limited liability companies that existed before today must now disclose this ownership information to the Treasury Department within two years, where the Financial Crimes Enforcement Network (FinCEN) will collect the data and disclose it to law enforcement agents banks on request.
Unlike public beneficial ownership registries in the the European Union and the United Kingdom, however, the American public (and the rest of the world public) won’t have access to this data. Many eyes will not help make this corruption shallow.
Rep. Carolyn B. Maloney (D-NY), the chair of the House Oversight Committee and sponsor of the Corporate Transparency Act of 2019, first introduced a beneficial ownership bill back in 2010. At a news conference upon the passage of the National Defense Authorization Act in December 2020, Maloney called her legislation the “most important anti-money laundering and anti-corruption bill in 20 years, and it will make our country substantially safer.”
Good governance advocates who worked towards this day over the past decade concurred with her today, and celebrated its passage.
“The new provisions serve as the most significant update to U.S. anti-money laundering laws in a generation,” wrote Transparency International, in a statement.
“Ending the abuse of anonymous shell companies is a tremendous victory for all who are concerned about the harmful impacts of corruption,” said Gary Kalman, Director of Transparency International’s U.S. Office. “It’s a huge step forward in fighting illicit finance at home and around the globe. 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.”
The United States has needed a beneficial ownership database for years, revealing money laundered in shell companies and finding secret offshore tax havens . There’s a reason this has been on the agenda of open government advocates and coalitions for over a decade: corruption hidden by shell companies has damaged national security, public health, and commerce.
There’s also a reason it happened now: investigative journalism by BuzzFeed News, the International Consortium of Investigative Journalists, and over one hundred other newsrooms around the world around FinCEN Files, a cache of secret records that showed how the world’s most powerful banks were moving dirty money around. After the news organizations began publishing their stories, the United Kingdom began a formal inquiry into Britain’s oversight of banks, the European Parliament began looking for anti-money laundering reforms, and other nations have launched their own investigations.
But anonymous shell companies in the United States had to be addressed domestically to make a impact on corruption globally.
The Financial Accountability and Corporate Transparency (FACT) Coalition praised the enactment of the landmark law in a statement by executive director Ian Gary:
“After more than a decade-long campaign to end the formation of anonymous shell companies that are abused by the criminal and the corrupt, the United States has enacted historic reforms to protect Americans and our financial system from abuse. We applaud Senate and House lawmakers for passing this critical, bipartisan anti-corruption reform by overwhelming margins. We look forward to working with the incoming Biden Administration to ensure the strong and timely implementation of the new law.
“For years, experts routinely ranked anonymous shell companies — where the true, ‘beneficial’ owners are unknown — as the biggest weakness in our anti-money laundering safeguards. Virtually every national security expert, law enforcement official, and human rights advocate that looked at the issue called for an end to anonymous companies. It’s the single most important step we could take to better protect our financial system from abuse.
“For more than a decade, the FACT Coalition and our members have worked tirelessly to assemble a powerful alliance of ideologically-diverse constituencies to back an end to anonymous companies. Supporters of transparency eventually included hundreds of national security experts, police and prosecutors, banks and credit unions, CEOs, the real estate sector, large businesses, small business owners, faith groups, anti-human trafficking groups, human rights organizations, global development NGOs, anti-corruption advocates, labor unions, and conservative and liberal think tanks. The campaign was so successful that the State of Delaware and the U.S. Chamber of Commerce — both of which had previously opposed reform — ultimately endorsed transparency.
“The FACT Coalition truly appreciates the leadership of our allies on Capitol Hill, without whom this never would have been possible. Special thanks are due to Senators Brown, Crapo, Warner, Cotton, Jones, Rounds, Menendez, Kennedy, Cortez Masto, Moran, Whitehouse, Grassley, Wyden, and Rubio as well as Representatives Maloney, King, Luetkemeyer, Waters, McHenry, Cleaver, Malinowski, Wagner, and Waltz for their leadership on this issue. We also thank Leader McConnell, Leader Schumer, Speaker Pelosi, Leader McCarthy, Leader Hoyer, Senate Armed Services Chairman Inhofe, Senate Armed Services Ranking Member Reed, House Armed Services Chairman Smith, and House Armed Services Ranking Member Thornberry for prioritizing the Corporate Transparency Act’s inclusion in the National Defense Authorization Act. A special note of appreciation is also due to former Senator Levin, who introduced the first piece of legislation on this topic back in 2008.”
As author Casey Michel observed, “the U.S. just eliminated the primary building block in America’s transformation into an offshore haven, and passed the most sweeping counter-kleptocracy reforms in decades—potentially ever.”
As Michel explained, this is a “huge boost to American credibility in the fight against modern kleptocracy. Huge blow to those who’d turned to the U.S. time and again for their laundering needs, and those U.S. states that had transformed into money laundering havens of their own. gain, this is a massive testament to all those who exposed the rot these anonymous shell companies led to, especially the journalists who exposed the laundering networks and civil society activists pressuring legislators to make this change (when it seemed next to impossible). The fight against anonymity, and these American kleptocratic building blocks, is hardly over. Trusts, real estate, private equity, hedge funds, art houses, auction houses… much work remains. But today is absolutely a day to celebrate.”
Now, the US Treasury will have to conduct a rulemaking to create a beneficial ownership registry and then a redaction process to remove personally identifiable information from records it discloses.
The agency will need good product management, design and UX, but the crucial factors in implementing this well will leadership from the Secretary — presumably former Fed chair Janet Yellen — to do this well.
Treasury will need political cover from President Biden and Vice President Harris, the White House Office of Management versus powerful monied interests.
The Biden administration will need to make serious investments in protecting integrity and engaging the American people in the rulemaking process.
But enacting a law that should have been a key plank in our nation’s weak open government action plan in 2019 today is phenomenal.
It’s a potentially transformative action that is the result of determined advocacy by a broad coalition across American society for over a decade. It’s great news.
Did Trump veto the NDAA over this?
It’s just may be that the bonafide reason Trump vetoed the National Defense Authorization Act – despite it being passed with strong bipartisan majorities after months of negotiation – was not reforming or repealing Section 230, inflicting catastrophic damage to the modern online ecosystems by stripping intermediary from the biggest websites on the Internet. Nor was it renaming U.S. military bases named after Confederates, as mainstream and print publications reported and clerks intoned, quoting the White House veto language.
It was the landmark anti-corruption law embedded in the bill would create a beneficial ownership database that would directly impact money laundering by banning anonymous shell companies in the United States.
Martin Sheil — a 30-year veteran investigator at the IRS who retired as a Supervisory Special Agent in its Criminal Investigation Division – made a compelling case back in December that this was real reason the most Trump vetoed the NDAA was to prevent this anti-corruption bill from becoming law.
Money laundering and “following the money” will affect Trump in the area he cares about the most: himself.
While the emolumental corruption of the most corrupt president in United States history is clear, Trump’s complicated finances and foreign entanglements remain unresolved, unrivaled, and unrevealed.
That will change in 2021, when Trump loses the immunity he enjoyed as president.
This post has been updated with additional links, statements, and commentary.
Image Credit: Corporate Compliance Insights, “How Shell Companies Might be Circumventing FinCEN’s Beneficial Ownership Rule.”