Legislative Sausage-Making and Anonymous Shell Companies

Drafting legislation is sometimes compared to making sausage. It’s not a pretty process. Yet the end result can be productive if not delicious. It depends in large part on what is stuffed into the casing.

The House Financial Services Committee is in the process of grinding sausage – this month they are marking up legislation dealing with anonymous shell companies and other anti-money laundering and counter-terrorist finance controls.

The process has included a number of compromises and watered-down ingredients. Unfortunately, there is now a very real chance that the most important feature – a commonsense proposal to control anonymous shell companies by mandating the disclosure of beneficial ownership information – may be stripped entirely, leaving a proposed bill that would be worse than the status quo.

And, while the intricacies of the legislative process might not be palatable for many, in this case the process affects us all.

Outside of crimes of passion (for example, murder committed in a jealous rage), criminals, kleptocrats, and other bad actors are typically motivated by greed. This greed affects us all. Ongoing opioid, methamphetamine and cocaine epidemics are devastating families and whole communities. Gang violence, financial fraud, fraud in government contracting, corruption, internet scams, identity theft and other crimes affect our daily lives.

And, the range and magnitude of the kind of organized criminal activity that generates these illicit proceeds are increasing. For example, intellectual property rights violations, human trafficking and environmental degradation are all unfortunate manifestations of this same greed.

Lastly, terror finance — a corollary of money laundering — and sanctions-busting threaten national security, and rely on the same schemes to move money undetected as these other players do.

Money laundering is an essential component of all these activities. It enables greed because it turns criminal proceeds into seemingly clean money that can be freely spent.

An all-too-common component of money laundering is the use of anonymous shell companies.  Smart criminals try to hide, launder or obscure the source of money or those that are involved with the criminal activity. They make use of anonymous business structures that are perfect for layering or complicating the money and ownership trail.

Unfortunately, the United States is the easiest place in the world to set up an anonymous shell company. It can be done online in a few minutes and for minimal cost, with no requirement that those who actually own or control the company disclose their ownership. Shell companies can also be registered to someone who provides his or her identity for a fee, known as a nominee, who can be a lawyer, accountant, another person connected to the real owner, or even another company or trust. As a former Treasury special agent, I can attest that the establishment of multiple “layers” where the true beneficiary is not known makes it extremely difficult to follow the criminal money trail.

There are international standards and norms that discourage the formation of anonymous shell companies. But we are the world’s worse violator of these standards. Moreover, the United States has been consistently criticized for its hypocrisy. We tell others to clean up their act regarding money laundering and terror finance while our policies on anonymous shell companies facilitate the very activities we criticize.

Fortunately, over the last few years, broad bipartisan support for comprehensive anti-money laundering and counter terrorism financing reforms has grown. Associations representing credit unions, small banks, large banks and other financial institutions have all indicated support for legislation to require the collection of beneficial ownership information. Realtor associations, CEOs of multinational corporations and small business trade associations have as well. Faith-based coalitions, police organizations and prosecutors, scholars at conservative and liberal think tanks, legal scholars, veterans and civilian national security experts have all weighed in to support a national standard for collecting beneficial ownership information because they know it is needed.

Policymaking is often the art of compromise. But the end result still has to have real impact. That’s why it’s deeply concerning that lawmakers are considering leaving out this key component due to pressure from lobbyists and vested interests. Without this measure, the remaining package may actually make money laundering and terror finance easier by weakening the current money laundering laws. That’s not compromise — that’s capitulation.

This is moment the best chance we have ever had of lifting the veil of secrecy that is used to hide assets, launder money, and move suspect funds. It is time to take meaningful action against criminal activity that directly affects the American people.

Let’s hope the sausage-makers use the very best ingredients.


John A. Cassara is a former U.S. intelligence officer and Treasury special agent who has written four books on money laundering and terror finance.

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