February 6, 2018

Whitehouse to Lead Judiciary Committee Hearing on Fighting Crime and Corruption Aided by Shell Corporations

Washington, DC – Today, the Senate Judiciary Committee will hold a hearing on countering illicit international financial networks, including instilling greater transparency in forming corporate entities that can facilitate crime or corruption.  Senator Sheldon Whitehouse (D-RI), Ranking Member of the Judiciary Subcommittee on Crime and Terrorism, will join Judiciary Committee Chairman Charles Grassley (R-IA) to preside over the hearing.  Whitehouse and Grassley are the lead sponsors of the True Incorporation Transparency for Law Enforcement (TITLE) Act, which would make it more difficult for criminals and foreign enemies to hide assets from tax authorities and law enforcement using shell corporations.  The TITLE Act would address corporate transparency loopholes that the so-called Paradise and Panama papers exposed in U.S. law.

Panelists at the hearing, which will kick off at 10 a.m., include:

Panel I
Mr. Kendall Day, Acting Deputy Attorney General, Criminal Division, U.S. Department of Justice, Washington, DC

Panel II
Mr. Gary Kalman, Executive Director, FACT Coalition, Washington, DC
Mr. Chip Poncy, President and Co-Founder, Financial Integrity Network, Washington, DC
Mr. Brian O’Shea, Senior Director, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce, Washington, DC
Mr. Clay Fuller, Jeane Kirkpatrick Fellow, American Enterprise Institute, Washington, DC

In recent years, many countries have required greater transparency in their incorporation laws, while the United States has lagged behind, rendering it one of the most attractive places in the world to set up dummy corporate entities.  Currently, applicants can form corporations and other business entities in the United States without disclosing the people who really own the companies. 

Whitehouse’s as-prepared remarks for the hearing are below.  Video of the hearing is available here.

AS-PREPARED Remarks of Senator Sheldon Whitehouse

Senate Judiciary Committee Hearing

“Beneficial Ownership: Fighting Illicit International Financial Networks Through Transparency”

February 6, 2018

Thank you, Chairman Grassley, for holding this hearing and for all your work on the TITLE Act. 

The so-called “Panama Papers,” followed by the “Paradise Papers,” exposed what many in the law enforcement and anticorruption world already knew: that corrupt officials, tax cheats, drug traffickers, terrorists, and other criminals from around the world routinely use shell companies to hide assets and obscure illegal activities.  Sadly, thanks to our lax incorporation laws, the United States is a favorite destination for money laundering.  Make no mistake, we are a facilitator, as well as a target, in this racket.

Russian kleptocrats, drug dealers, and 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 companies exist to hold legal title to bank accounts, real estate, or other assets, hiding the true human owners.

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 homes serving as lavish safe-deposit boxes, the housing supply tightens, stretching the budgets of 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 and make that information available to law enforcement.  That is what the TITLE Act does.

Over the past year, Congress, and this Committee in particular, has heard law enforcement and foreign policy experts sound the alarm that our lack of incorporation transparency is a glaring loophole in our laws and is putting our nation at risk. 

In a March 2017 Crime and Terrorism Subcommittee hearing on Russia’s interference in our election, Heather Conley, a scholar the Center for Strategic and International Studies and author of “The Kremlin Playbook,” warned that “enhancing transparency and the effectiveness of the Western democratic tools, instruments, and institutions is critical to resilience against Russian influence.”

In a November 2017 Judiciary hearing, Kenneth Blanco, Deputy AAG, Criminal Division, explained “The pervasive use of front companies, shell companies, nominees, or other means to conceal the true beneficial owners of assets is one of the greatest loopholes in this country’s AML regime.”

Jennifer Fowler, the Deputy Assistant Secretary, Office of Terrorist Financing and Financial Crimes, Department of Treasury, called the lack of beneficial ownership information “a vulnerability.”

John Cassara, a former Treasury Special Agent, told our Committee that “requiring the real owner of a U.S. company to be named during the incorporation process will cut down, in dramatic fashion, the ability of criminals to finance their crimes.”

Perhaps Kendall Day of DOJ’s Criminal Division, who will testify before our Committee today, summed it up best at a Senate Banking hearing last month.  He simply said, “Beneficial ownership is a problem we need to fix.”

We know the problem and we know the solution.  Transparency in business ownership is not a novel idea.  The rest of the world moving ahead.  In fact, 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 corporate 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 continue to facilitate corruption and crime. 

In the year 1630, John Winthrop told his fellow early American settlers that, “We must always consider that we shall be as a city upon a hill—the eyes of all people are upon us.”   Our European partners are doing their part to combat crime facilitated by shell corporations.  If we don’t soon follow suit, I fear we will risk losing our place as that city on a hill and beacon of justice.   

I am glad we are holding this hearing today, and I look forward to hearing from our distinguished witnesses. 

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