You can run but you can’t hide – the end of anonymous US shell companies

Written by Gontran de Quillacq

Gontran de Quillacq is an expert witness and a legal consultant. He is a recognized authority in options, trading, derivatives, structured products, portfolio management, hedge funds, mathematical finance, quantitative investment, strategy research and financial markets in general.

With the deluge of national events and political news in this beginning of 2021, this piece of legislation is going under the radar, but it deserves attention. Hidden in the defense bill initially vetoed by President Trump and overridden by Congress, is the Corporate Transparency Act. It is a game changer in the fight against money laundering and corruption.

  • Shell corporations appear when a legitimate company ceases to do business. They can also be created for a few dollars in a tax haven or in the US. More interestingly, shell companies do not have to disclose who their true owners are, thanks to registered agents.
  • The Panama Papers scandal demonstrated the breadth of illicit companies used by corporations, politicians, arms dealers, drug lords, as well as the rich & famous to avoid taxes (by raising prices of goods in transfer in a low-tax jurisdiction), circumvent legal restrictions (ownership concentration limits…), syphon money away (1MDB), accept bribes (FIFA), bring dirty money back into the US system (the law is expected to impact real estate prices in Florida and NY!), or even silence a porn actress during an election campaign.
  • Shell companies are a significant issue for investigators, as their secrecy can only be lifted through legal processes, often difficult to obtain internationally. More embarrassingly, the state of Delaware is second only to Switzerland in a list of tax havens, and prevent disclosures. Company incorporations generate over $1bn of revenues to the state, which has groomed favorable laws and courts over decades.
  • This new legislation forces shell companies to disclose their true owners in a s confidential database accessible by law enforcement agencies and financial entities, handled by the Treasury Department, to the dismay of several registering businesses, law firms, and even US states.
  • The law also waves the $150,000 cap on whistleblower compensations, which will allow individuals to take the risk of coming forward.

This should give an advantage to law enforcers in the ‘whack-a-mole’ AML game.

Credits to Joshua Goodman at The Associated Press.

And Credits to Ryan Hubbs for an excellent article on shell companies in Fraud Magazine:

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