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WHO MAKES YOUR MONEY?

The US finally removed the most important tool of global criminals

Former Trump campaign chairman Paul Manafort, is escorted into court for his arraignment in New York Supreme Court in New York
Reuters/Lucas Jackson
More money laundering is likely to be caught thanks to the Corporate Transparency Act.
  • Tim Fernholz
By Tim Fernholz

Senior reporter

Prosecutors chasing drug dealers, human traffickers, and money launderers of all stripes find their trail runs cold in the same places: Delaware. South Dakota. Nevada.

The US has been a haven for financial criminals because its laws allowed for the creation of shell corporations that do not have to reveal their owners, often with less information than the local library would demand before lending a book.

Illicit gains from criminal enterprise effectively disappear when transferred to these corporations. Vladimir Putin may have deposits in US banks. The Iranian government secretly owned a skyscraper in Manhattan for decades. And kleptocrats of all stripes buy American real estate with shell companies to hide ill-gotten gains.

But thanks to lobbying by a coalition of human rights activists and law enforcement agencies, anonymous companies can no longer be formed in the US. Lawmakers included the text of the Corporate Transparency Act inside the mammoth US defense policy bill enacted over president Donald Trump’s veto on Jan. 1.

Trump and his associates have been closely connected with secret companies. His former campaign officials Paul Manafort and Rick Gates pled guilty to crimes connected to laundering money through Delaware shell corporations that were eventually shut down, while his son-in-law Jared Kushner employed a different shell company to pay Trump family members using presidential campaign funds.

Backers of the new law call it the most important update to US money laundering rules in a generation. “You cannot think of an illicit activity in the world that does not at its heart require forming an anonymous company,” says Lakshmi Kumar, an official at the NGO Global Financial Integrity.

For years, law enforcement agencies have asked the government to force these companies to disclose their beneficial ownership. The measures were largely opposed by financial sector lobbyists, realtors, and states that benefit from looking the other way when dirty money sloshes into their businesses and tax coffers. But years of lobbying brought even the state of Delaware and the Chamber of Commerce around to back the new measure.

When the law comes into effect, new corporations will need to report the name, address, date of birth, and driver’s license or other identification number of the true beneficial owner to the US Treasury. Existing anonymous corporations have two years to provide the same information, and any future changes in ownership will require updated information.

There are some key exceptions—journalists and the general public won’t be able to access this information, just government investigators. Some corporate firms, including charities, certain investment funds, and companies that demonstrate real business activity are also exempt, which could provide new loopholes for future bad actors.

Still, the new law promises to narrow the opportunities criminals have to move their money into the legal financial system and hinder tax evasion.

Correction: This story originally misidentified the NGO Global Financial Integrity.

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