Friday December 3rd, 2021 11:32PM

New law cracks down on shell companies to combat corruption

By The Associated Press

MIAMI (AP) — For years as a federal prosecutor in New York, Daniel R. 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 decade-long 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.

“It’s not an overstatement that this law is a game changer in some serious ways,” said Alonso, who is now in private practice advising clients on foreign corruption and anti-money laundering issues.

The Corporate Transparency Act was tucked into a defense spending bill first vetoed by President Donald Trump and then overridden by Congress on New Year’s Day.

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 U.S. financial system -- the world’s largest and most stable -- has long been a magnet for dirty money. But the tools to prevent abuse by bad actors haven’t kept pace with technology and a proliferation of instant, online transactions across borders.

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.

Creating a shell company in states like Delaware requires little more than a payment of a $90 fee and a one-page letter listing the entity’s the name, P.O. Box and a registered agent who is frequently a law firm dedicated to churning out companies in bulk. The true owners are rarely listed, their identities hidden under a web of subsidiaries. But once created, the entities can be used to purchase legitimate assets, such as real estate, using ill-gotten funds furtively transferred into a U.S. bank account.

One such Delaware-based company, Essential Consultants LLC, was used by Trump’s former personal attorney, Michael Cohen, to conceal hush money payments to porn star Stormy Daniels. Others registered in the state have been tied to corrupt military officers in Venezuela, drug trafficking guerrillas from Colombia and former Zimbabwean dictator Robert Mugabe.

“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. He now is a forensic accounting professor at Salisbury University in Maryland. “Kleptocrats and corrupt foreign officials did not need secret bank accounts in Switzerland. They were right here.”

Less touted, the law also dramatically expands awards for whistleblowers. Specifically, individuals who come forward with evidence of financial malfeasance are entitled to receive up to 30% of money seized by the Treasury or Justice Departments when their information leads to successful law enforcement actions. Previously, awards were capped at $150,000.

“This could end up being the secret sauce,” said Michael Nadler, a recently retired federal prosecutor in Miami who has brought charges against dozens of corrupt Venezuelan officials. “It has the potential to weaponize low-ranking company officers who have access to sensitive client information and see criminal behavior.”

The Justice Department will also have expanded powers to demand foreign bank account records when they suspect criminal activity. And the law also extends oversight to the trade in high-value antiquities. Expensive artwork -- a frequent vehicle to hide the proceeds of corruption -- may also be brought within the reach of anti-money laundering laws pending a study the government must produce within a year.

While it may take some time for the law’s impact to be felt, experts believe it will drive away from the U.S. some of the dirty money from abroad that has driven up real estate prices in major cities like New York, Miami and Los Angeles.

But nobody expects crime and corruption to stop. One weakness of the law, says former Treasury investigator Weber, 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 multi-million dollar game of whack-a-mole.”


Follow Goodman on Twitter: @APJoshGoodman

  • Associated Categories: Associated Press (AP), AP National News, AP Online National News, Top U.S. News short headlines, Top General short headlines, AP Online Headlines - Washington, AP Online Congress News, AP Business
© Copyright 2021
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
New law cracks down on shell companies to combat corruption
A watershed reform of U.S. money laundering laws could allow investigators to uncover the proceeds of foreign bribery, drug trafficking and terrorism in just a few keystrokes
9:36AM ( 5 minutes ago )
Gut-Behrami's veteran skills win tricky World Cup super-G
Lara Gut-Behrami showed her veteran skills to win a tricky World Cup super-G
9:12AM ( 29 minutes ago )
Syria temporarily cuts supplies of fuel to meet shortages
Syria’s petroleum ministry is blaming U.S. sanctions for forcing it to reduce by up to 24% its distribution of fuel and diesel
9:11AM ( 30 minutes ago )
Associated Press (AP)
Indonesian divers find parts of plane wreckage in Java Sea
Authorities say they have determined the location of the crash site and black boxes of a Boeing 737-500, a day after the aircraft crashed into the Java Sea with 62 people on board shortly after taking off from Indonesia’s capital
6:50AM ( 2 hours ago )
Spain shovels out of snowdrifts left by Storm Filomena
Emergency crews in central Spain have cleared 500 roads and rescued over 1,500 people stranded in vehicles as the country slowly shovels out of its worst snowstorm in recent memory
6:38AM ( 3 hours ago )
The Latest: England invites over 80s to get virus vaccine
Thousands of people 80 and older have started receiving invitations to get a coronavirus vaccine shot in England
6:01AM ( 3 hours ago )
AP National News
Pope prays for dead in Capitol rioting, appeals for calm
Pope Francis says he's praying for the dead in the U.S. Capitol rioting and has appealed for calm to prevail in the United States
7:20AM ( 2 hours ago )
Australia, US, UK, Canada criticize Hong Kong mass arrests
The foreign ministers of Australia, the United States, Great Britain and Canada have issued a joint statement expressing serious concern about the arrest of 55 democracy activists and supporters in Hong Kong last week
3:13AM ( 6 hours ago )
Top Republican says Trump committed 'impeachable offenses'
President Donald Trump is facing growing Democratic momentum to impeach him a second time
12:09AM ( 9 hours ago )
AP Online Headlines - Washington
Dems' momentum builds to impeach Trump, Pelosi hits rioters
Momentum among Democrats is continuing to build for a fresh and fast push to impeach President Donald Trump
5:34PM ( 16 hours ago )
After deadly siege, lawmakers ask why police so outnumbered
Images of Wednesday's riot at the Capitol show police completely overwhelmed by rioters who shoved, kicked and punched their way into the building
3:00PM ( 18 hours ago )
Man accused of stealing Pelosi's lectern charged in invasion
A Florida man allegedly photographed grinning as he carried away House Speaker Nancy Pelosi’s lectern after a mob of President Donald Trump’s supporters stormed the nation’s Capitol is among the latest people charged after Wednesday’s mayhem left five people dead
2:05PM ( 19 hours ago )
AP Online Congress News
Asia Today: China reports 360 cases south of Beijing
More than 360 people have tested positive in a growing COVID-19 outbreak south of Beijing in neighboring Hebei province
3:58AM ( 5 hours ago )
New Zealand central bank says data system hacked
New Zealand’s central bank says one of its data systems has been breached by an unidentified hacker who potentially accessed commercially and personally sensitive information
12:23AM ( 9 hours ago )
The Latest: Mexico sees record 16,105 new virus cases
Mexico has posted another daily record for newly confirmed coronavirus cases, with 16,105 new infections reported Saturday, and a near-record of 1,135 deaths related to COVID-19 in the latest 24-hour period
10:22PM ( 11 hours ago )
AP Business
Gut-Behrami's veteran skills win tricky World Cup super-G
Lara Gut-Behrami showed her veteran skills to win a tricky World Cup super-G
9:12AM ( 29 minutes ago )
Syria temporarily cuts supplies of fuel to meet shortages
Syria’s petroleum ministry is blaming U.S. sanctions for forcing it to reduce by up to 24% its distribution of fuel and diesel
9:11AM ( 30 minutes ago )
EXPLAINER: Why is Indonesia prone to plane crashes?
Saturday’s plane crash in Indonesia, in which a Sriwijaya Air Boeing 737-500 carrying 62 people plunged into the Java Sea shortly after takeoff, has once again cast the limelight on the safety of the country’s aviation industry
9:07AM ( 35 minutes ago )
Austria's Schwarz wins World Cup slalom to lead standings
Marco Schwarz salvaged Austria’s tough weekend in Switzerland by winning a World Cup slalom on Sunday
9:06AM ( 36 minutes ago )
LaMelo Ball becomes youngest NBA player with triple-double
LaMelo Ball had 22 points, 12 rebounds and 11 assists to become the youngest player in NBA history to record a triple-double, and the Charlotte Hornets beat the Atlanta Hawks 113-105 for their third straight win
9:03AM ( 39 minutes ago )