POGO Joins Groups Calling on Congress to Support Incorporation Transparency, Ban Anonymous U.S. Shell Companies

United States Senate

Washington, DC 20510

[cc: Members of the U.S. Senate]

Dear Senator,

We, the 41 undersigned organizations, associations and investors are writing to express our strong support for the bipartisan Senate Bill 1483, the Incorporation Transparency and Law Enforcement Assistance Act, which would require companies to disclose information about the real people who own or control them (often called the “beneficial owners”) at the time they are created.

This is a critical piece of legislation that would enable law enforcement to more effectively and efficiently conduct investigations to combat terrorism and financial crime, as they would have access to important information regarding beneficial ownership. In addition, increased corporate transparency would curb corruption and tax evasion, promote an equitable market economy, reduce the opacity of corporate campaign contributions, help ensure a fair and level playing field for small- and medium-sized businesses, foster global development and enhance national security.

Approximately two million corporations are formed in the U.S. each year. Most states allow the anonymous incorporation of companies. Some states require the listing of shareholders, but these can be other companies or “nominees” who serve as front people or service providers for the actual shareholder. Typically, less information is provided to incorporate than is required to obtain a driver’s license or open a bank account. It is currently legal for a person to incorporate a company without disclosing who benefits from its existence or ultimately controls its activities.

Investigations continue to reveal that American and foreign terrorists, narco-traffickers, arms dealers, corrupt foreign officials, tax evaders, individuals targeted for financial sanctions and other criminals easily and regularly set up U.S. shell companies, without providing any information about who owns or controls such companies. Criminals often layer anonymous corporations, with one owning another and so on, to make it even harder for law enforcement to “trace the money” to figure out who is directing the company’s activity – i.e. the identity of the real criminal. This enables criminals to disguise their identities behind the anonymity provided to U.S. corporations and launder dirty money through the U.S. financial system.

State laws govern the creation of U.S. corporations, and states have been aware of the problems caused by anonymous corporations for several years but have made little effort to collect the information needed to adequately address this problem. Some states may be concerned that if they require such information they will lose customers to those states where ownership can still remain hidden from law enforcement. A uniform, federal requirement that no corporation be anonymous is the only effective way to ensure a level playing field for states. To ensure this new requirement would not pose a fiscal burden on states, the U.S. Department of Justice and the U.S. Department of Treasury have offered $30 million of forfeiture funds to offset the costs to states for implementing this change.

The ease with which criminals abuse U.S. shell companies to further their illicit activities is increasingly being highlighted by the media and global institutions. Reuters published a series of articles under the heading “Shell Games” over the past year that explores the extent and impact of corporate secrecy in the U.S., including how shell companies have been used to defraud Medicare. The Economist authored multiple articles this year about the scale of the problem and called for a change in the law to prevent the abuse of shell companies. CNBC recently produced Filthy Rich, a documentary that underscores how easy it is to hide assets behind anonymous American shell companies. In addition to the rise in media attention, a recent World Bank report found that the U.S. was the favorite destination of corrupt politicians trying to set up shell companies to access the financial system.

This bill will provide law enforcement with a critical tool in the fight against financial crime and the financing of terrorism. The U.S. Department of Justice, U.S. Immigration and Customs Enforcement, the former District Attorney of New York and the Federal Law Enforcement Officers Association have all testified at Congressional hearings that the ability of criminals to wash their dirty money through anonymous U.S. shell corporations significantly impedes their efforts to fight terrorism and other serious crime in the U.S. and internationally. This is why the Administration has prioritized transparency of legal entities in the Strategy to Combat Transnational Organized Crime and in the Open Government Partnership U.S. National Action Plan.

We respectfully request that you co-sponsor the bipartisan Incorporation Transparency and Law Enforcement Assistance Act. We encourage you to focus on providing law enforcement with the tools needed to effectively fight crime and the criminals that rely on the anonymity U.S. corporations provide to shield their identities so they can launder money in the U.S. If you are interested in more information about this important piece of legislation, please contact Stefanie Ostfeld ([email protected]) or Heather Lowe ([email protected]).

Thank you for your commitment to this important issue.

Sincerely,