A US senator’s angry quest to crack down on dirty money

Sheldon Whitehouse brandishes documents during a Senate Judiciary Committee hearing for Brett Kavanaugh’s supreme court nomination.
Sheldon Whitehouse brandishes documents during a Senate Judiciary Committee hearing for Brett Kavanaugh’s supreme court nomination.
Image: AP Photo/Pablo Martinez Monsivais
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Senator Sheldon Whitehouse is not a man who messes around. The former prosecutor from Rhode Island has a gruff tone, jarringly direct speaking style, and visceral hatred of dirty money.

He has centered his political career around that anger, sponsoring countless bills trying to crack down on financial secrecy, and in 2017, co-writing a book called Captured: The Corporate Infiltration of American Democracy.  When I last spoke to him about the subject a couple of years ago, he frothed

“We are an embarrassing laggard in an area where we should be leaders if we are to be a ‘city on a hill.’ You can’t be a ‘city on a hill’ when you’re in the gutter with the criminals and the kleptocrats.”

Back then, he was pushing a bill to clamp down on the anonymous shell companies beloved of sex traffickers, kleptocrats, and other ne’er-do-wells. The bill got…nowhere. In fact, Congressional attempts to end corporate secrecy have consistently failed for over a decade.

This year, Whitehouse is back with a very similar piece of legislation, and feels it’s got a decent shot. With Democrats now in power in the House, a sister bill authored by representative Carolyn Maloney has already had a hearing. Treasury secretary Steve Mnuchin has indicated his support for the efforts, and senior Republican lawmakers, like Senate Finance Committee chair Chuck Grassley want to see action.

The question of why this is so important brings Whitehouse to something close to a joke—if biting sarcasm counts. “Other than the law enforcement, national security, and financial reasons for cleaning it up, there’s really not much of a reason—apart from the obvious moral one,” he says.

I caught up with him over the phone while on a reporting trip to Nevada. The conversation has been lightly edited for length and clarity.

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Why should Americans worry about corporate anonymity?

Corporate anonymity, from a law enforcement perspective, is a powerful facilitator of criminal activity. It enables criminal organizations to launder their money so that they can use it without having it be connected to the criminal scheme from which it emerged, and it enables them to invest it in ways that make it hard for law enforcement to pursue their assets. From a national security point of view, we have for our entire history seen ourselves as city on a hill that offers an example of governance to the rest of the world. That has been a very valuable national asset of ours, that reputation. If we turn into basically the Cayman Islands writ large and become the new dark money haven for the globe, that is a real blot on the a face of the city on the hill. And finally, there are financial reasons for trying to clean this all up because it allows tax avoidance and fraudulent financial conduct to take place.

How would you rank America’s levels of corporate secrecy? Some say it’s as bad as the Cayman Islands and Bermuda.

At the moment I think we are the biggest haven for illicit shell corporations, which is not a great brand for the United States of America, and we have not made the kind of progress that we’ve seen in the EU and in England, as they recognize the perils of the situation and have moved to clean up their transparency issues. So we risk becoming a bit of a pariah if we don’t get after this.

The UK already has a completely public register of the owners of its companies, and the EU is instituting something similar. Would you advocate for that in the US?

In my bill it would be available to law enforcement and anybody else operating under court authority with a subpoena. But it wouldn’t be completely transparent to any curious person who happened by, so we’ve actually been a bit more conservative in the effort to try to get this passed.

I think there ought to be [a public registry] because that allows the media and folks who have blogs and are involved in NGOs that work in this space to get access to this information. And I think ultimately the more transparency there is, the less misbehavior there is and that’s all to the good.

I’ve just come from Wyoming where they have various arguments to keep their anonymity. One is that they’re a small state, with significant brain drain and a sizable budget deficit, and this is an important part of their economy. What do you say to that?

When you’re harming the reputation of your country and facilitating criminal conduct and tax fraud, doing it for a fee doesn’t really improve your argument.

Another argument is privacy. They say they want to be away from the overreach of the government and that they also don’t trust it not to lose the data, via hacking or other means.

You have sought the shelter of the state in order to create an artificial legal entity and the idea that the state has a common-sense right to know who you are when you’re doing this, using its power, to me is a very convincing one. When you add onto it the mischievous illegal and criminal uses for which this privacy is often used, that makes the case even stronger. I think what they’re trying to do is to tap into a kind of faux-libertarian general purpose argument. But if you actually look down into the weeds of this issue, that argument has very little merit.

People also argue that you’re never going to eliminate fraud, so you shouldn’t take this mechanism away from legitimate businesses.

Yeah, that’s a really good idea. I think that the other thing is you’re never gonna get rid of car accidents, so let’s get rid of the speed limit and airbags and seat belts because you can’t get rid of your car accident. That’s the sort of nonsensical argument where you actually recognize that fraud is a problem, and then argue for a mechanism that facilitates fraud on the basis that it doesn’t get rid of that.

It just shows how much this issue has become captured by rhetorical arguments that don’t make sense under scrutiny, but are designed to have surface appeal to people who haven’t given it any scrutiny. And you have to wonder who is behind creating those phony baloney arguments when you see them.

Who do you think is behind them?

Well I think that the estimates of how big this international dark economy is run up into multiple trillions of dollars. As a lawyer, I’m embarrassed to say that there are lawyers who have dedicated their professional lives to facilitating clients, to navigate this darkened world. And there are, I’m sure, realtors who sell apartments to kleptocrats who hide behind shell corporations. And there are yacht brokers who are selling multimillion dollar yachts to international criminal shell corporations. And there are financial institutions that cater to protecting the assets of these nefarious characters. So, I suspect that these arguments emerge from the ring of aiders and abetters of the dark money folks at the core of it.

Incorporation makes up a huge portion of the budgets of some of these states—almost a third for Delaware—so if we do take away these provisions, how do they start breaking even?

My state is able to break even without having to sell out the country through phony shell corporations. You know, you just find a more honest way to earn the revenue.

Another thing supporters of corporate anonymity say is that they’ve changed a lot of things since the Panama Papers, and the idea that a lot of people are laundering money through US shell companies is an old, outdated narrative.

I don’t see that anything much has changed. When you’ve got Mark Zuckerberg testifying to the Senate, that his new brilliant way of trying to detect who’s behind buying political ads on Facebook is to look only as far as the corporate front that actually bought the advertising…it’s like an open invitation to international crooks or anybody else who wants to meddle in American politics: Here’s your political manipulation kit. Set up a phony baloney shell corporation and then have it buy time on Facebook, they won’t look behind the shell corporation. The idea that there’s not going to be mischief there is really fanciful.

To go to your bill—legislation like this has been floating around Congress for a decade. Why do you have confidence in it now?

I think there is increasing bipartisan support on this issue as the national security concerns have become more apparent…you have groups as diverse as [left-wing think tank] the Center for American Progress and [conservative think tank] the Hudson Institute all clamoring about the risk that this presents to our country. And you have the recent experience of all those creepy shell corporations that [former Trump campaign chair Paul] Manafort moved his assets through, and the false fronts through which the Russians sold ads onto Facebook. So there’ve been some fresh examples of mischief that have I think raised the profile of this world. If you go back a little ways, I’d say that the Panama Papers and the Paradise Papers moved people in this direction too, as that all became apparent.

We’re hearing support from Republicans in Congress, but president Trump loves LLCs. Do you expect him to sign a bill like this?

I think if it comes with strong bipartisan support, he’d be hard pressed not to. And if you really wanted a way to direct legislative attention to your shell corporations, it would be to be the president of the United States who maintained shell corporations and vetoed a shell corporation transparency bill. So, I’m not sure he’d want to attract that particular spotlight to himself, particularly as we move into an election season. But he gets to make his decisions and if that’s one he makes, we will be very happy to engage him on the merits of that decision.