It’s time to eliminate anonymous shell companies
As the District Attorney of New York County, my office, time and time again, finds its criminal investigations thwarted by an absurd system of secrecy whereby criminals can hide their money without even breaking a sweat — or the law.
Welcome to the bizarre world of anonymous shell corporations.
The average American likely knows very little about them. But your average terrorist, drug-trafficker, tax evader or money launderer is well versed in the art of legal anonymity. Every day they make or move illicit money, and America’s lax incorporation laws make it easy to hide the money behind anonymous shell companies and launder it through U. S. and foreign banks and their branches.
Take, for example, the case of Michel De Jesus Huarte, who defrauded Medicare of more than $4.5 million using a fake AIDS clinic in Miami and 29 other anonymous shell companies. It took years for law enforcement to cobble together the web of fraudulent companies that was spread across several states, and it confounded investigators.
Huarte was eventually caught and put behind bars, but his scheme was no isolated incident, as shell companies are a favorite tool of fraudsters. In October 2010, for instance, 44 members of an Armenian organized crime ring used 118 shell companies in 25 states to defraud Medicare of $100 million. Today, as well as during the time of my predecessor, district attorney Robert Morgenthau, this office has investigated cases in which anonymous shell companies were used in schemes involving mortgage fraud, tax evasion, larceny, bribery and much more.
Anonymous U.S. shell companies shielded the Iranian ownership of a midtown Manhattan skyscraper in a scheme designed to skirt U.S. sanctions and funnel money from the United States to Iranian agents around the world. Ironically, it was corporate records maintained by the UK’s Isle of Jersey that provided the key break in the case. That’s right, the Isle of Jersey — a jurisdiction many in this country consider a “tax haven” — has incorporation laws with greater transparency than those in our own country. Small wonder that many foreign jurisdictions accuse the United States of hypocrisy when it comes to international banking standards.
There is no reason why anonymous corporations should exist in the United States. Congress could eliminate them overnight, at relatively little cost, by passing the bipartisan Incorporation Transparency and Law Enforcement Assistance Act, which would require states to collect information about the real people who own or control companies. The Senate bill, which is pending before the Committee on Homeland Security and Governmental Affairs, is supported by a broad array of law enforcement groups, including the Justice Department, the Society of Former Special Agents of the FBI, and the Fraternal Order of Police.
This bill is critical to the work of law enforcement and district attorneys, because all too often investigations are stymied when we encounter a company with hidden ownership. These nameless, faceless companies can do business just like any other, but it is difficult, if not impossible, to identify the real people behind them.
“Follow the money” is a standard investigative strategy. Law enforcement agents start at the street level — the drug dealer or low-level lackey — and try to follow the paper trail to the ringleader. When we can identify the owners of anonymous shell companies, we can track down those kingpins and bring them to justice.
An anonymous company in Nevada may be owned by another in Delaware, which is owned by a trust in the Cayman Islands, and so on. Criminals use layers of shell companies to frustrate investigators and protect themselves from prosecution. Sometimes we find alternate routes to bring evidence against the kingpins, but more regularly our investigations are thwarted at the low end of the criminal food chain. We may arrest low-level lackeys, who get easily replaced. So we go after them and fail to prosecute the top-level crooks.
This is a problem wherever anonymous companies can be incorporated. That includes virtually every U.S. state, for very few collect any information about the real owner of a company. For all the grumbling about offshore shell companies, many U.S. states are no better. Secrecy has become a big business in places like Delaware, Nevada and Wyoming, where even the people named on a company’s board of directors are often little more than a fiction. For a small fee an incorporation agent can provide your company with a set of “nominees,” or random individuals, to stand in as representatives for your board of directors and shareholders. It’s a practice perfectly legal in most states. In fact, the only two states that require information identifying corporate owners – a standard practice in most countries – are Maine and Alaska.
Once a company has the legitimacy afforded by incorporation in the United States, opening bank accounts to access the global financial system is easy. You or I have to show proof of identity to put a few hundred dollars into a checking account, but a corporation can instantly move millions of dollars to distant points on the globe without so much as a real person’s name — someone who can be held accountable if the corporation violates a law — associated with the transaction.
It is almost a certainty that, at this very moment, a terrorist cell, drug cartel or corrupt government official is using an anonymous U.S. shell corporation to finance illicit activities. We should provide law enforcement with the tools necessary to thwart these activities and set a standard for the rest of the world. Congress must move quickly to pass the Incorporation Transparency and Law Enforcement Assistance Act.