20th January 2021
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The Corporate Transparency Act bolsters the fight against illicit finance and corruption: but why are many political bodies exempt?
Joe Biden was today sworn-in as president and must tackle the most challenging “to do” list faced by a new US leader for decades. From steering his country through the continued horrors of Covid-19 to that small matter of restoring trust in US democracy following Trump: Biden’s workload is already unenviable.
Of course, the new resident of the White House has one seemingly powerful new weapon available to him in the fight against organised crime: the Corporate Transparency Act (CTA).
Squirrelled away as a provision in the National Defense Authorisation Act, the CTA has been heralded as a step-change in the battle against the sort of money laundering and tax evasion which fuels and pays for more violent or serious organised crime such as people or drug trafficking.
I’ve been a little busy with a book project over the past few months, so have yet to blog about the significance of the CTA.
So for the uninitiated, the new US law requires the disclosure of the “beneficial” (or ultimate) owner of a corporation, limited liability company (LLC) or trust when it is established. This was deemed necessary because as many as 16 US states – including Delaware and Wyoming – previously allowed the incorporation of anonymous shell companies whose owners’ details were not passed to the state: an attractive method by which organised crime, including drugs cartels, moved hundreds of billions of dollars in ill-gotten gains each year through laundering etc.
From this year, individuals with a controlling or significant share in many companies, LLCs or trusts will now be required to provide (privately) their details to the Financial Crimes Enforcement Network (FinCen), which is an offshoot of the US treasury. Failure to provide these details on an annual basis could result in a $10,000 fine and two years’ imprisonment. It would also likely trigger a major Treasury investigation into those financial vehicles which remained “anonymous”, and the likely seizure of its assets.
So the CTA has rightly been lauded as a powerful new tool in the fight against illicit finance.
There has been the usual legal debate about the precise wording of the CTA law – including claims by tax advisory firms that certain financial or corporate vehicles, such as foundations, do not appear to be covered by the letter of the new law (something the Treasury disputes, and will no doubt be tested in the courts). But in effect, the anonymous shell company should gradually become a thing of the past in states such as Delaware.
Good news, you would think?
Well, yes. But not entirely good news.
There remain concerns that the CTA fails to tackle organised crime’s widespread use of ‘shills’ to establish the corporate vehicles often used to launder their cash, as well as an understanding by many criminal justice experts that organised criminals will simply use fake identifications (easily available in states like China) to get around the new ID requirements.
As such, many experts believe the CTA is more likely to be an effective tool in the battle against ‘everyday’ tax evasion than provide any meaningful defence against large-scale laundering by organised crime. It remains to be seen whether this is the case.
But I do have a real concern about the list of bodies and organisations exempt from the new CTA rules, due to the risk of another form or organised crime: corruption.
Controversially, non-profit corporations are exempt from the requirement on CTA filings. These exemptions include political bodies currently subject to Section 527 Political Action Committee (527 PAC) filings, as well as “Super PACs” and trade unions. And, let’s face it, such bodies have not always had the cleanest record when it comes to past corruption.
While these 527 PAC bodies and others may not present the same destabilising threat to societies as drugs cartels or arms dealers, they have not been beyond buying political favours in the past. Heaven forbid that they might have to tell the Treasury who is involved.
If the additional transparency required under the CTA catches or exposes organised crime, all the better. That is why the new law has been celebrated by organisations such as Global Financial Integrity, which has long lobbied for an end to anonymous corporations. Critics may carp about how the CTA doesn’t tackle ‘shills’ and the like – but it is another tool in the fight against organised crime.
I just wish the politicians who design these laws in the US (and elsewhere) ensured their own houses are subject to the same transparency requirements as your average business owner, “Joe Public” or even criminal mastermind. That is when we’d achieve a truly level playing field on financial transparency.
What are the chances of Joe Biden addressing that?
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