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WASHINGTON: A major avenue for money laundering and tax evasion globally has been closed by a new law requiring disclosure of the owners of US shell companies that are used to hide billions of dollars.
The Corporate Transparency Act was included in the US defense appropriations bill passed by Congress on Friday night, overriding President Donald Trump’s veto.
The law requires the “beneficial owners” behind shell companies to report their identities to the United States Treasury Financial Crimes Enforcement Network, or FinCEN.
While the law still grants them protection from public knowledge, only Treasury and law enforcement will be able to access FinCEN’s database, transparency advocates say it is a big step against kleptocrats, organized crime, and the wealthy tax evaders who have been able to anonymously launder their suspicious wealth through the world’s largest economy.
“For years, experts routinely ranked anonymous shell companies … as the greatest weakness in our safeguards against money laundering,” said Ian Gary, executive director of the FACT Coalition, which lobbied for the legislation.
“It is the most important step we could take to better protect our financial system from abuse.”
The United Nations estimates that between $ 800 billion and $ 2 trillion is laundered through the global financial system each year
While much of the attention has focused on tax havens like Panama and the Cayman Islands, experts say that the size of the United States economy and its ability to absorb billions of dollars without warning has made it crucial to convert illicit funds into legitimate assets.
In early 2020, the Tax Justice Network ranked the Cayman Islands and the United States as the world leaders in helping people hide their finances from the law and tax enforcement.
PROPERTY AND ART
Gary Kalman, US director of Transparency International, said that the Corporate Transparency Act was “fundamental” to combat money laundering.
Despite geopolitical tensions, he noted that money has entered the United States from China and Russia because it was the easiest place to launder it, through property, corporate assets, securities and art.
“We are the easiest place in the world to set up an anonymous company,” he told AFP before the approval of the law.
“We are the dream of any kleptocrat or criminal to hide money.”
By forcing business owners to disclose their identities, he said, the United States is setting a “global standard” for the global financial system.
“By blocking access to advanced economies, you are making it much more difficult. You are increasing the cost and the likelihood of being caught,” he said.
The legislation establishes penalties for not informing the final beneficiaries of a company of up to two years in prison and a fine of $ 10,000.
FACT said the law could result in a sharp drop in business cash transactions, especially in real estate, a preferred way for foreigners to move large sums into the US economy.
FACT also says that anonymous companies support the trade in counterfeit luxury goods, pharmaceuticals and industrial equipment.
The legislation is not perfect, analysts say. FinCEN’s database will not be open to the public or the media, whose efforts have produced the biggest money laundering stories.
For example, the International Consortium of Investigative Journalists was behind the explosive release in 2016 of the Panama Papers, about 11.5 million documents that detail secret companies installed in the Central American country.
In that case, police authorities around the world made use of files made public by reporters, which showed prominent politicians, celebrities and businessmen hiding money abroad.
Although they will have all the new data, the US Treasury and law enforcement have limited ability to review the files themselves.
“We believe that the database should be public,” Kalman said.
