Seven things to watch after historic anti-money laundering overhaul in the US

The land­mark leg­is­la­tion con­tains sev­er­al loop­holes, exemp­tions and short­com­ings that may become key vul­ner­a­bil­i­ties in the fight against cor­rup­tion and finan­cial secre­cy, advo­cates say.

WASHINGTON, DC — DECEMBER 31: Clouds pass overt the Capitol Dome as the Senate resumes debate on over­rid­ing the veto of the National Defense Authorization Act (NDAA) on December 31, 2020 in Washington, DC. Senator Bernie Sanders (I‑VT) is fil­i­bus­ter­ing the NDAA, call­ing for a Senate vote on giv­ing Americans $2,000 in direct pay­ments for COVID-19 relief. (Photo by Joshua Roberts/Getty Images)

Washington law­mak­ers rang in the new year by large­ly ban­ning anony­mous shell com­pa­nies in the United States, one of the world’s most attrac­tive places for crim­i­nals and wrong­do­ers around the world to hide dirty money.

The new law will for the first time require mil­lions of com­pa­nies incor­po­rat­ed in the U.S. to report their true own­ers to the fed­er­al gov­ern­ment for inspec­tion by law enforce­ment and com­pli­ance offi­cers at banks and oth­er finan­cial insti­tu­tions. Known as the Corporate Transparency Act, the law was attached to a mas­sive nation­al defense fund­ing bill that Congress passed with a veto-override.

As the International Consortium of Investigative Journalists has report­ed across mul­ti­ple inves­ti­ga­tions — includ­ing, most recent­ly, the FinCEN Files — anony­mous com­pa­nies are a major vul­ner­a­bil­i­ty in the glob­al fight against tax avoid­ance and mon­ey laun­der­ing. Drug car­tels, oli­garchs, despots and the glob­al elite use them to con­ceal for­tunes from tax author­i­ties and law enforce­ment. Establishing a U.S. gov­ern­ment reg­istry of com­pa­ny own­ers was a key reform that experts said was need­ed in response to ICIJ investigations.

But the trans­paren­cy is not com­plete. The law, sup­port­ed by both the U.S. Chamber of Commerce and left-lean­ing Public Citizen — an unusu­al Washington alliance — is the result of years of nego­ti­a­tions. It con­tains loop­holes pushed for by spe­cial inter­est groups that may blunt some of its pow­er, even accord­ing to those who advo­cat­ed for it and are now cel­e­brat­ing its passage.

Here are sev­en major areas where experts say the bill falls short that could pave the way for future polit­i­cal action.

 1. Some Wall Street investment vehicles don’t have to report.

Hedge funds and pri­vate equi­ty firms cre­ate pooled invest­ment vehi­cles typ­i­cal­ly open only to wealthy investors. The law does not apply to some of these enti­ties, experts say, even though law enforce­ment has warned that they are ripe for abuse.

Threat actors,” accord­ing to a 2020 Federal Bureau of Investigation bul­letin“like­ly use the pri­vate place­ment of funds, includ­ing invest­ments offered by hedge funds and pri­vate equi­ty firms, to laun­der money.”

2. Big businesses are exempt, too.

The new law exempts any firm that has more than $5 mil­lion in annu­al rev­enue, more than 20 employ­ees, and a phys­i­cal office in the U.S. “At least in my world, that exemp­tion cov­ers near­ly every­one,” said Stephen Quinlivan, a cor­po­rate lawyer spe­cial­iz­ing in merg­ers and acqui­si­tions at Stinson LLP. One ratio­nale for the carve out, advo­cates say, is that these larg­er com­pa­nies have actu­al employ­ees and offices, and are thus much eas­i­er to understand.

3. Trusts could slip through the cracks.

Trusts are a pre­ferred means of con­vey­ing gen­er­a­tional wealth — and some­times to avoid tax­es and to hide and laun­der mon­ey, as ICIJ has pre­vi­ous­ly report­ed. They are murky legal crea­tures: often, com­posed main­ly of a con­tract dic­tat­ing how the wealth they hold will be allo­cat­ed. It can be dif­fi­cult to deter­mine who tech­ni­cal­ly owns a trust’s wealth before dis­tri­b­u­tions are made, experts say. Unlike com­pa­nies, trusts often do not reg­is­ter with any government.

The new law explic­it­ly exempts cer­tain types of char­i­ta­ble and semi-char­i­ta­ble trusts. Advocates are also con­cerned about the wider cat­e­go­ry of per­son­al and fam­i­ly trusts slip­ping through the cracks because these enti­ties might not fall into the new law’s def­i­n­i­tion of a “com­pa­ny.” For this rea­son, experts believe the new law could de fac­to exclude a wide swath of per­son­al and fam­i­ly trusts.

This is the biggest con­cern for me,” said Gary Kalman, the direc­tor of Transparency International’s United States office, adding that he believes that trusts are already one of the U.S.’s largest mon­ey laun­der­ing vul­ner­a­bil­i­ties. Kalman adds that it is pos­si­ble that, dur­ing the imple­men­ta­tion of the law, fed­er­al agen­cies could inter­pret its lan­guage to include some trusts — and the law man­dates a study into prob­lems that the lack of trust own­er­ship infor­ma­tion poses.

4. The new ownership registry will remain secret.

Only a sub­set of gov­ern­ment and finan­cial insti­tu­tion offi­cers will be able to access own­er­ship infor­ma­tion con­tained in the new “secure, non­pub­lic data­base” that the law estab­lish­es. Researchers, jour­nal­ists and oth­ers try­ing to track dark mon­ey will be shut out.

A ful­ly pub­lic own­er­ship reg­istry wouldn’t be unique. In 2016, the United Kingdom man­dat­ed that many com­pa­nies reg­is­tered in the coun­try must list their own­ers in a reg­istry that is freely acces­si­ble to the pub­lic online. Although the U.K. reg­istry has been beset by faulty or absent infor­ma­tion, trans­paren­cy advo­cates say that the pub­lic inspec­tion of the infor­ma­tion has been cru­cial in flag­ging prob­lems that should be fixed with­in the sys­tem. Advocates say their sup­port of a pub­lic own­er­ship reg­istry will not stop with the pas­sage of the new law. “That’s going to be a fight we’re going to con­tin­ue to have down the road over time,” Clark Gascoigne, a senior pol­i­cy advi­sor at the Financial Accountability and Corporate Transparency Coalition, told ICIJ.

5. Registry access for state and local law enforcement is limited.

The new law stip­u­lates that although many fed­er­al agents will have rel­a­tive­ly easy access to the own­er­ship data­base, state and local law enforce­ment will have to obtain per­mis­sion from a court employ­ee each time they want to access it. “This seems exces­sive and is going to dis­cour­age law enforce­ment,” said Alma Angotti, glob­al leg­isla­tive and reg­u­la­to­ry risk direc­tor at the con­sult­ing firm Guidehouse.

6. Art dealers don’t have to report suspicions of financial crime — for now.

Along with the dis­clo­sure require­ments, the over­all defense spend­ing law also expands the range of busi­ness­es that must report sus­pi­cions of hav­ing done busi­ness with crim­i­nals. Left off that list: art dealers.

The art trade is a major hotspot for inter­na­tion­al mon­ey laun­der­ing as ICIJ recent­ly report­ed in FinCEN Files. Elise Bean, a for­mer U.S. Senate aide and inves­ti­ga­tor, called the art exemp­tion “strange” and not­ed that the leg­is­la­tion requires a study into the art mar­ket that she hopes will “lead to art deal­ers final­ly being added to the law.” While art deal­ers have been offered a free pass for now, the law does demand, for the first time, that antiq­ui­ties deal­ers report sus­pi­cious activ­i­ty to fed­er­al authorities.

7. The penalty for leaking ownership information is harsher than for not reporting it to the government in the first place.

People who mis­re­port com­pa­ny own­er­ship infor­ma­tion face a max­i­mum penal­ty of two years in prison. Anyone who leaks own­er­ship data to the press or any­one else could face up to five years in jail — and a decade if the dis­clo­sure hap­pens while com­mit­ting anoth­er fed­er­al crime.

These penal­ties are out of whack,” Ross Delston, a lawyer and con­sul­tant in Washington, D.C., spe­cial­iz­ing in anti-mon­ey laun­der­ing sys­tems, told ICIJ. “Since when is the own­er­ship of a com­pa­ny an inher­ent­ly pri­vate mat­ter?” The law sep­a­rate­ly cre­ates new rewards and pro­tec­tions for whistle­blow­ers who come for­ward to the gov­ern­ment about a broad range of finan­cial misconduct.

Spencer Woodman, ICIJ

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