Washington, DC – Today, Senator Sheldon Whitehouse (D-RI) chaired a hearing of the Helsinki Commission to examine the European Union’s (EU) beneficial ownership transparency provisions and its success in limiting the use of shell corporations as a vector for authoritarian regimes’ influence in Europe.
“Starting a shell corporation in this country can be easier than getting a library card,” said Whitehouse. “The United Kingdom has already implemented its own transparency law. The light of transparency is about to shine on criminal assets hidden in European shell companies, which means that lots of money will be looking for new, dark homes. We cannot let America become that new dark home for corruption and crime.”
Whitehouse is the lead sponsor of the bipartisan True Incorporation Transparency for Law Enforcement (TITLE) Act, legislation that would make it more difficult for criminals, kleptocrats, and the beneficiaries of foreign corruption to hide assets from U.S. tax authorities and law enforcement. Whitehouse also serves as Ranking Member on the Senate Judiciary Crime and Terrorism Subcommittee, where he has helped to lead an investigation of Russian meddling in our elections and has confronted the use of shell corporations and dark money as tools of the Russian government.
As Whitehouse pointed out, lax incorporation laws expose the United States to further meddling in important institutions by adversaries like Russia.
“With every passing day, we learn more about how Russia and Russian kleptocrats exploit opaque business laws to hide ill-gotten riches, bribe corrupt officials, and undermine the world economy and democratic institutions,” Whitehouse said. Quoting the Center for Strategic and International Studies’s Heather Conley in her report, “The Kremlin Playbook,” Whitehouse noted that “corruption is ‘the lubricant’ with which the Russians operate” and that “to fight the corruption that gives Russia this channel of influence, ‘enhancing transparency and the effectiveness of the Western democratic tools, instruments, and institutions is critical.’”
The Organization for Security and Cooperation in Europe, nongovernmental organizations, and national governments have emphasized incorporation transparency as an effective way to combat global corruption. The EU has been at the forefront of this effort, enacting rules that require Member States to maintain registers of the beneficial owners of companies and other structures associated with laundering the proceeds of crime.
Witnesses at the hearing included:
- Charles Davidson, Executive Director, Kleptocracy Initiative, Hudson Institute
- Pat O’Carroll, Executive Director, Federal Law Enforcement Officers Association
- Caroline Vicini, Deputy Head of Delegation, Delegation of the European Union to the United States
- Gary Kalman, Executive Director, FACT Coalition
As the witnessed testified, the range of illicit uses for shell corporations is long and various. Recent examples involving U.S. entities include:
- The Iranian Government using a string of generic businesses to obscure its ownership of a Fifth Avenue skyscraper;
- A former Soviet military officer and notorious arms dealer, Viktor Bout, created twelve
anonymous U.S. companies in Delaware, Florida, and Texas;
- A Mexican drug cartel using an Oklahoma corporation to launder money through a horse farm;
- A crime syndicate setting up a web of corporations in eight states as part of a $100 million Medicare fraud scheme; and
- A human trafficking ring based in Moldova hiding its crimes behind anonymous corporations in Kansas, Missouri, and Ohio.
Whitehouse’s opening statement is below.
Remarks of Senator Sheldon Whitehouse on Incorporation Transparency
Helsinki Commission Hearing
October 3, 2017
This hearing will come to order. Good afternoon and thank you all for being here. I’d like to especially thank Chairman Wicker for working with me to hold this hearing on combatting crime and corruption through increased transparency.
From 2012 to 2015 the Azerbaijani government reportedly funneled €2.5 billion from four UK-based shell companies through an Estonian branch of a Danish bank to bribe European politicians and Azerbaijani elites, in a scheme dubbed the “Azerbaijani Laundromat.” According to a report from the Organized Crime and Corruption Project, “the money bought silence” during a time when the Azerbaijani government “threw more than 90 human rights activists, opposition politicians, and journalists into prison on politically motivated charges.”
The Azerbaijani Laundromat is not a unique scheme. In 2015, the “Panama Papers” exposed what many in the law enforcement and anticorruption world already knew: that corrupt officials, tax cheats, drug traffickers, terrorists, and criminals from around the world routinely use shell companies to hide assets and obscure illegal activities. American’s lax corporation laws have made the United States a favorite destination for money laundering. Make no mistake, we are now a facilitator, as well as a target, in this racket.
With every passing day, we learn more about how Russia and Russian kleptocrats exploit opaque business laws to hide the ill-gotten riches, bribe corrupt officials, and undermine the world economy and democratic institutions. Heather Conley at the Center for Strategic and International Studies wrote in her report, “The Kremlin Playbook,” that corruption is “the lubricant” with which the Russians operate. CSIS warns that to fight the corruption that gives Russia this channel of influence, “enhancing transparency and the effectiveness of the Western democratic tools, instruments, and institutions is critical.”
Russian kleptocrats, foreign drug dealers, and international tax cheats all use the same tool to launder their ill-gotten gains and evade law enforcement: the shell corporation. A shell corporation serves no economic purpose and conducts no real business. Instead, these entities exist to hold legal title to bank accounts, real estate, or other assets, hiding the true owners.
America is a haven for those doing mischief through shell corporations. In fact, starting a shell corporation in this country can be easier than getting a library card. Currently, no state requires the disclosure of beneficial owners—the real human beings who own the companies. Instead, corporate records can identify the owner as just another shell corporation or a professional agent who was paid to sign the needed forms and never speak of them again. Or a lawyer who refuses to disclose the client, citing attorney-client privilege.
We have seen over and over how foreign governments and criminal organizations have abused our lax incorporation laws.
- The Iranian Government used a string of generic businesses to obscure its ownership of a Fifth Avenue skyscraper.
- A Mexican drug cartel used an Oklahoma corporation to launder money through a horse farm.
- A crime syndicate set up a web of corporations in eight states as part of a $100 million Medicare fraud scheme.
- A human trafficking ring based in Moldova hid its crimes behind anonymous corporations in Kansas, Missouri, and Ohio.
Then there are the Panama Papers—over 11 million documents leaked from a Panamanian law firm. They revealed mischief conducted through shell companies, like the 2011 purchase of a $3 million oceanfront condo in Miami by a Brazilian politician facing corruption charges. And in 2015, after a lengthy investigation, the New York Times uncovered that a Russian banker suspected of ties to organized crime purchased a nearly $16 million condo in Manhattan’s Time Warner Center.
The Financial Crimes Enforcement Network, a division of the U.S. Treasury Department, found that 30 percent of the cash purchases of high-end real estate by shell companies in six major cities involved a suspicious buyer. With so many properties serving as lavish safe-deposit boxes, the housing supply tightens, raising costs for American families.
The crimes being hidden may be complex and the assets they conceal may be elaborate, but the answer to the problem of shell corporations is simple: require private corporations to report and update their beneficial ownership information. I’ve introduced legislation with Senators Grassley and Feinstein that does just that. Senators Rubio and Wyden have also teamed up on related legislation.
Transparency into shell corporations is not a novel idea. As we will hear from the panel, every member of the European Union has committed to ensuring such transparency. The United Kingdom has already implemented its own transparency law. The light of transparency is about to shine on criminal assets hidden in European shell companies, which means that lots of money will be looking for new, dark homes.
We cannot let America become that new dark home for corruption and crime.
In the year 1630, John Winthrop told his fellow early settlers that, “We must always consider that we shall be as a city upon a hill—the eyes of all people are upon us.” If we become the new, dark home, I fear we will risk losing our place as that city on a hill as beacon of justice. In the global battle of ideas, chaining our American reputation to international crime and corruption is a self-inflicted stain that we do not need.
I am delighted we are holding this hearing today, and I look forward to hearing from our distinguished witnesses. And I’m delighted that Senator Shaheen and Senator Boozman join us.
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