Bill Banning Anonymous Shell Companies Clears Congress

Chris Gaetano
Published Date:
Dec 14, 2020

The Senate on Friday approved the Corporate Transparency Act, a measure that bans the use of anonymous shell companies in the United States; having cleared both chambers of Congress, the legislation now heads to the White House for final approval, the Washington Post reported. While the measure is embedded in the National Defense Authorization Act, which the president has threatened to veto, there is enough support in Congress to override it, and therefore it is all but certain to become law.

Under the act, corporations and limited liability companies established in the United States must disclose their real owners to the Treasury Department, which will make it more difficult for illicit activities such as money laundering and tax evasion to remain hidden. New York County District Attorney Cyrus R. Vance Jr., speaking at the Foundation for Accounting Education's November 2018 Anti-Money Laundering Conference, said that anonymous shell companies have long been a thorn in the side of those investigating financial crime.

"In any investigation of a white-collar nature, we must follow the money to identify what the evidence is and who is most culpable, which means issuing subpoenas to financial institutions and pursuing leads we hope their records will provide," he said. "But today, and it has been this way for the nine years I've been DA, too often these leads go nowhere, and our investigators have eaten up days and months only to hit a wall."

On a "near daily basis," Vance said, his office encounters a company or network involved in a suspicious activity but is unable to determine who is actually controlling and benefiting from it. Consequently, his office cannot identify an actual suspect. He ruefully noted that if the company had incorporated in the Cayman Islands, which does collect beneficial ownership information, a prosecutor would actually be better positioned to root out financial crimes than if it had formed in the United States instead.

Rep. Carolyn B. Maloney (D-N.Y.), a long-time supporter of the legislation, said that U.S. shell companies have enabled corrupt foreign leaders and criminals to buy luxury real estate in Manhattan anonymously, according to the Post. These apartments, she said, "were purchased purely to hide money and act as a bank account."

One caveat in the bill is that the general public won’t have access to the ownership data; further, the law also exempts some entities from the disclosure requirements, including domestic investment funds that are advised and operated by a registered investment adviser.

Bankers, who often are the first line of defense in anti-money laundering prevention, hailed the move, according to American Banker, as it would save time and money in determining the real owners of a corporation. Banks have been required to identify and verify the identity of the beneficial owners of companies opening accounts since 2016.

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