WASHINGTON • A major avenue for global money laundering and tax evasion has been blocked by a new law requiring disclosure of US shell company owners who have hidden billions of dollars.
The Corporate Transparency Act was incorporated into the U.S. Defense Equipment Act, passed by Congress last Friday, overriding President Donald Trump’s veto.
The law forces “beneficial owners” behind Shell companies to report their identity to the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
While the law continues to protect them from public knowledge – only the Treasury Department and law enforcement agencies can access the FinCEN database – advocates of transparency say this is a huge step against kleptocrats, organized crime, and wealthy tax evaders who have been able to anonymously launder their suspicious wealth from the world’s largest economy.
“For years, experts have routinely identified anonymous shell companies as the main weakness in our anti-money laundering safeguards,” said Ian Gary, executive director of the Legislative Fact Coalition.
“This is the most important step we can take to better protect our financial system from abuse.”
The United Nations estimates that $ 800 billion (S $ 1.05 trillion) to $ 2 trillion is laundered through the global financial system each year.
While much of the attention has been focused on tax havens like Panama and the Cayman Islands, experts say the size of the US economy and its ability to raise billions of dollars without notice made it crucial to turn illicit funds into legitimate assets.
Early last year, the Tax Justice Network ranked the Cayman Islands and the United States as the world leaders in helping people hide their finances from law and tax authorities.
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Gary Kalman, the US director of Transparency International, said the Corporate Transparency Act was “fundamental” to combating money laundering.
Despite geopolitical tensions, he pointed out that money from China and Russia flowed into the United States because it was the easiest place to launder through real estate, corporate assets, stocks and art.
“We are the easiest place in the world to set up an anonymous business,” he told Agence France-Presse before the law was passed.
“We are a kleptocrat or a criminal’s dream of hiding money.” By forcing company owners to reveal their identity, the US is establishing a “global norm” for the global financial system.
“By stifling access to the advanced economies, you make it a lot harder. You increase the cost and the likelihood of getting caught,” he said.
The legislation provides penalties for failure to report beneficial owners of a business with a prison term of up to two years and a fine of $ 10,000.
According to Fact, the law could lead to a sharp drop in cash transactions, especially in real estate. This is a preferred way for outsiders to move large sums of money into the US economy.
Fact also says that anonymous companies support the trade in counterfeit luxury goods, pharmaceuticals and industrial equipment.
The legislation is not perfect, say analysts. The FinCEN database will not be accessible to the public or the media, whose efforts have spawned the greatest stories about money laundering.
For example, the International Consortium of Investigative Journalists was responsible for the explosive publication of the Panama Papers in 2016, about 11.5 million documents listing secret companies that were formed in the Central American country.
In this case, law enforcement agencies around the world took advantage of the files published by reporters, in which prominent politicians, celebrities and business people hid money off the coast.
While they will all have new data, the U.S. Treasury Department and law enforcement agencies have limited ability to browse files on their own.
“We think the database should be public,” said Kalman.
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