Lawmakers make bipartisan push to crack down on money laundering and ‘dark money’ shell companies

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Senators Lindsey Graham (R-S.C.) and Sheldon Whitehouse (D-R.I.) held a hearing Wednesday to discuss efforts to crack down on shell companies used by foreign actors. (Drew Angerer/Getty Images)

A bipartisan group of lawmakers wants to require obscure corporations and limited-liability companies to disclose their true owners to law enforcement to snuff out laundered cash and political “dark money” flowing into the U.S. from foreign-influenced shell companies.

Members of Congress have introduced a number of bills mandating disclosure of companies’ beneficial owners — the person or persons who enjoy the benefits of ownership and control the company — to federal investigators. Lawmakers are mostly attempting to crack down on money laundering and the financing of other illegal activities. But the proposed legislation could also impact foreign interference in U.S. politics.

Foreign nationals and governments are prohibited from directly or indirectly engaging in activity to influence U.S. elections. But opaque LLCs, which are not required to disclose their beneficial owners to the public or law enforcement, frequently contribute to politically-active outside groups. This untraceable process has prompted concerns that they are anonymously injecting foreign money into the U.S. political process.

More than 4,000 LLCs contributed to groups in 2016, nearly quadruple the number in 2012. In the 2016 election cycle alone, nearly $46 million came from LLCs at the federal level, nearly double the $24 million from LLCs in the 2012 presidential election cycle.

Overall, direct spending in U.S. federal elections by groups that do not disclose their donors has exceeded $1 billion since no deposit bonus forex began tracking dark money in 2006.

Opaque foreign money has also found its way to political committees. Jho Low, a fugitive Malaysian financier accused of stealing billions, allegedly used a shell company to funnel more than $1 million to a pro-Barack Obama super PAC ahead of the 2012 presidential election. Low has not only been charged in relation to his alleged illegal foreign contributions in support of Obama, but has also been tied to suspicious money transfers funneling money into President Donald Trump’s joint fundraising committee.

These anonymous shell companies also show up in Foreign Agents Registration Act filings, masking the source of money behind influence campaigns and undermining the intent of the law to provide transparency on foreign influence activities.

Lax corporate disclosure laws have turned the U.S. into a top destination for shell companies. Last year, the U.S. surpassed the Cayman Islands to become the second largest haven for secretive offshore accounts and shell companies, according to a report from London-based Tax Justice Network.

“We’re becoming second only to Switzerland in the place people pick to put their money,” Senate Judiciary Chairman Lindsey Graham (R-S.C.) said during Wednesday’s hearing on shell companies. “Being second in a lot of things is good … not here.”

Lawmakers have introduced a number of bills to address the flow of untraceable money. Senate Judiciary Committee members Sheldon Whitehouse (D-R.I.) and Chuck Grassley (R-Iowa) introduced legislation Tuesday that would require corporations to turn over beneficial ownership information to law enforcement in the event of a subpoena or summons.

A bipartisan group of senators in early June proposed their own bill to combat abuse of shell companies, requiring that corporations and LLCs disclose their beneficial owners to the Treasury Department. Reps. Carolyn Maloney (D-N.Y.), Peter King (R-N.Y.) and Tom Malinowski (D-N.J.) introduced similar legislation in May.

Whitehouse and Grassley, along with Graham and Sen. Dick Durbin (D-Ill.) have also introduced legislation to specifically address political contributions from shell companies. The bill, first introduced last year, would make it a felony for individuals to use or help set up a shell company to conceal illegal political activity such as foreign political contributions.

The Treasury Department’s financial crimes enforcement unit finalized a rule last year that requires financial institutions to collect beneficial ownership information for customers opening accounts. But experts say the rule won’t stop the flow of money from foreign shell companies, making Congressional action necessary.

“This was a step in the right direction. But the primary responsibility for identifying the owners of a company cannot lie with banks. It should lie with the companies themselves, at the time of incorporation or when their ownership changes,” former Acting Treasury Secretary Adam Szubin told the Senate Judiciary Committee Wednesday. “And FinCEN’s rule does nothing to illuminate the ownership of shell companies incorporated in the U.S. that exclusively open bank accounts abroad, a route that many dirty companies have followed.”

The House passed the Kleptocracy Asset Recovery Rewards Act, which would reward whistleblowers who notify the U.S. of assets linked to corrupt foreign individuals, in May. The legislation is currently being considered by the Senate Banking Committee, which will hold a hearing Thursday on the topic of beneficial ownership collection. Among the organizations testifying are the Bank Policy Institute and Financial Accountability and Corporate Transparency Coalition, both groups pushing for disclosure of beneficial ownership to law enforcement.

These kinds of measures find support from a number of powerful trade associations, public interest groups and think tanks, ranging from the American Banking Association to Public Citizen to the American Enterprise Institute.

Center for Responsive Politics Executive Director Sheila Krumholz testified before the Senate Judiciary Committee Wednesday, detailing how shell companies inject money into U.S. politics and advocating for greater transparency of beneficial ownership.

A few organizations have come out against the proposed measures. The National Federation of Independent Business has voiced opposition to some of the disclosure measures, expressing concern over the regulatory burden it would place on small businesses. The American Bar Association also expressed concerns about privacy.

None of the beneficial ownership proposals would propose creating a public registry of beneficial ownership information for businesses. Although some foreign countries keep their own running registries of these owners, U.S. lawmakers have not shown interest in expanding disclosure to that level, citing privacy concerns.

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