America must combat illicit finance

The Trump admin­is­tra­tion is engaged in bold ini­tia­tives to tack­le some of the most urgent chal­lenges fac­ing the United States, from Chinese stealth eco­nom­ic pira­cy to the opi­oid crisis. 

One way to advance this agen­da would be to defund the klep­to­crats, ter­ror­ists, drug car­tels, and oth­er crim­i­nals who threat­en the secu­ri­ty of the United States and our allies. By address­ing weak­ness­es with­in the American finan­cial sys­tem, the United States could also make the moral argu­ment for demo­c­ra­t­ic cap­i­tal­ism in the face of ris­ing author­i­tar­i­an­ism and eco­nom­ic cor­rup­tion worldwide.

The first step would be for Congress to address the mon­ey laun­der­ing vul­ner­a­bil­i­ty cre­at­ed by anony­mous con­trol of American shell com­pa­nies. Unlike the European Union, on this mat­ter, the United States does not man­date col­lect­ing cor­po­rate ben­e­fi­cial own­er­ship data. 

In all 50 states, less infor­ma­tion is required to reg­is­ter a com­pa­ny than to obtain a library card. It is almost impos­si­ble for our intel­li­gence and law enforce­ment agen­cies to inves­ti­gate who ben­e­fits from American incor­po­ra­tion to laun­der illic­it pro­ceeds or exert malign influ­ence with­in our economy.

The abil­i­ty to secret­ly trans­fer stolen wealth into the United States and oth­er secure juris­dic­tions has fueled a cor­rup­tion bonan­za across the devel­op­ing world, result­ing in illic­it finan­cial flows that now unfor­tu­nate­ly dwarf human­i­tar­i­an aid and devel­op­ment expen­di­tures. The enabling role of the United States in this prob­lem can­not be ignored. A World Bank study found that American com­pa­nies were used alarm­ing­ly more often in grand cor­rup­tion cas­es than those com­pa­nies from any oth­er country.

This spread of klep­toc­ra­cy, or “rule by thieves,” has harmed the poor­est and most vul­ner­a­ble pop­u­la­tions world­wide most of all. But it also desta­bi­lizes entire regions, cre­at­ing new fer­tile recruit­ing ground for ter­ror­ist groups and oth­er secu­ri­ty chal­lenges for the United States. Strategic rivals and rogue regimes, such as China, Russia, North Korea, Venezuela, and Iran all rely on crime and cor­rup­tion to con­sol­i­date their grip on pow­er and pro­mote their for­eign pol­i­cy. That shows why noth­ing enrages the Kremlin more than attempts to high­light the stolen wealth of Vladimir Putin and his cronies, as the Hudson Institute found out last year.

As General David Petraeus and Senator Sheldon Whitehouse have not­ed recent­ly, “The fight against cor­rup­tion is more than a legal and moral issue. It has become a strate­gic one, and a bat­tle­ground in a great pow­er com­pe­ti­tion.” It should there­fore be of grave con­cern that the ben­e­fi­cial own­er­ship issue ham­strings not only law enforce­ment, but also State Department and Treasury Department offi­cials tasked with fight­ing this ris­ing author­i­tar­i­an influ­ence and eco­nom­ic cor­rup­tion worldwide.

At meet­ings of the Financial Action Task Force, the inter­gov­ern­men­tal glob­al watch­dog tasked with fight­ing mon­ey laun­der­ing, anony­mous com­pa­nies are a stum­bling block to clos­er coor­di­na­tion with our allies and enable our adver­saries to deploy “whataboutism” to dis­tract from their own mis­deeds. By tack­ling cor­po­rate anonymi­ty, Congress would strength­en the American finan­cial sys­tem and allow our gov­ern­ment to pres­sure less scrupu­lous juris­dic­tions to do the same. It would choke off avenues for state backed crime and cor­rup­tion, even­tu­al­ly rolling back the malign eco­nom­ic influ­ence of author­i­tar­i­an regimes world­wide. Indeed, the United States could accom­plish all of this with­out com­pro­mis­ing on pri­va­cy rights or plac­ing new undue reg­u­la­to­ry bur­dens on business.

These issues are espe­cial­ly rel­e­vant in the con­text of the great pow­er com­pe­ti­tion with China. Some of the major Chinese com­pa­nies now accused of espi­onage and ram­pant intel­lec­tu­al prop­er­ty theft, includ­ing Huawei, appear to have obscured their own­er­ship struc­tures in order to con­ceal the con­trol­ling hand of Beijing. Chinese enti­ties rou­tine­ly use front and shell com­pa­nies to cir­cum­vent American sanc­tions on North Korea, Iran, and oth­er dan­ger­ous regimes. Moreover, such illic­it finan­cial net­works facil­i­tate the Chinese glob­al monop­oly on coun­ter­feit goods, the val­ue of which is esti­mat­ed to grow to up to $2.8 tril­lion and cost more than five mil­lion jobs by 2022. Chinese orga­nized crime net­works also rely on finan­cial secre­cy to laun­der prof­its from the dead­ly trade of fentanyl.

Paradoxically, Xi Jinping has sought to pro­mote China as an alter­na­tive mod­el of good gov­er­nance, part­ly through his domes­tic cam­paign to com­bat cor­rup­tion, from which his own allies have emerged from large­ly unscathed, and a Belt and Road Initiative that has expand­ed through dirty deals that often leave recip­i­ent coun­tries hope­less­ly indebt­ed to Beijing.

Indeed, the United States has a bet­ter offer for pop­u­la­tions impov­er­ished by transna­tion­al klep­toc­ra­cy, but it must lead by exam­ple. To counter ris­ing author­i­tar­i­an cor­rup­tion and make the argu­ment for demo­c­ra­t­ic cap­i­tal­ism in the 21st cen­tu­ry, we should first end cor­po­rate anonymi­ty in the American finan­cial sys­tem. The United States will then be in a much stronger posi­tion to reassert sov­er­eign­ty over its own finan­cial bor­ders and lead its demo­c­ra­t­ic allies in pro­mot­ing the rule of law worldwide.

Kenneth Weinstein is pres­i­dent and chief exec­u­tive offi­cer of the Hudson Institute, where Nate Sibley is a pol­i­cy fel­low in the Kleptocracy Initiative.

Original arti­cle: THE HILL