In a victory for transparency, Congress just banned anonymous shell companies

Anonymous shell companies have been used to evade taxes, launder drug money and defraud Medicare — but they'll soon be a thing of the past.

 

It’s the culmination of more than a decade of work by transparency advocates, led by the Financial Accountability and Corporate Transparency (FACT) Coalition, of which Fair Share is a steering committee member.

 

 

On Dec. 11, the U.S. Senate passed by a vote of 84-13 the National Defense Authorization Act, which contained the language from the bipartisan Corporate Transparency Act — a measure to end anonymous shell companies. The House had passed the legislation earlier the same week, also by a large margin, and, in a rare New Year's Day session, the Senate voted to override the president’s veto. Sens. Sherrod Brown (Ohio) and Mike Crapo (Idaho) were instrumental in winning passage in the Senate; Reps. Carolyn Maloney (N.Y.), Maxine Waters (Calif.) and Patrick McHenry (N.C.) led the way in the House.

 

 

The United States is currently the easiest place in the world to set up an anonymous company. In all 50 states, it requires less information to form a company than it does to get a library card. Importantly, not a single state requires disclosure of the company’s beneficial owner, i.e. the person or persons who actually control the company and ultimately benefit from its existence.

 

Unsurprisingly, criminal enterprises have exploited this for years. The brutal Los Zetas drug cartel laundered millions of dollars in illicit profits by setting up shell companies in the U.S. quarter horse industry. A scammer named Michel De Jesus Huarte used dozens of shell companies to defraud Medicare to the tune of more than $4.5 million.

 

That is all about to get a lot harder. The Corporate Transparency Act will require disclosure of the true, beneficial owner or owners of a company at the time it is formed.

 

 

In 2011, Fair Share and U.S. PIRG, alongside dozens of like-minded organizations founded the FACT Coalition*, and the FACT Coalition has been working ever since to put an end to anonymous companies.

 

In addition to serving on the coalition’s steering committee, Fair Share lent our research and organizing expertise to the cause. In a 2016 report titled “Anonymity Overdose,” Fair Share Education Fund explored shell companies’ role in the opioid crisis, including how they keep the drug trade profitable by providing an easy and anonymous way for traffickers to launder their profits. We also helped mobilize law enforcement, with Nathan Proctor (then with Fair Share, now with PIRG) teamed up with former U.S. Treasury agent John Cassara to make our case in a widely syndicated op-ed.

 

Gradually, momentum built. By the time the Corporate Transparency Act passed, it had broad support from across the political spectrum, from the national security community to faith groups, labor unions to the big banks.

 

 

Once it goes into effect, the Corporate Transparency Act will pull shell companies into the light, making it harder for criminals of all kinds to launder money.

 

Of course, corporations and individuals will still have available to them other loopholes and tax havens to avoid paying their fair share and they will still search for new ones to exploit. Along with our friends at the FACT Coalition, we'll continue to watchdog the tax dodgers and other shady dealers and advocate more reforms to stamp out their worst practices.