Time to end the dangerous shell game

The Hill's Congress Blog
August 28, 2013

By Frank Knapp Jr.

Iran heads the list of countries the United States and other nations have targeted for sanctions because of its believed nuclear weapons goal and its support of terrorist groups. There are few governments that elicit more concern among Americans than the one in Tehran.

Certainly no law-biding U.S. citizen or business would provide goods or services directly to Iran or any organization that funnels money to that regime. In fact, it is illegal to do so. But that is exactly what has happened and likely is still happening because it is perfectly legal in the U.S. to set up anonymous shell corporations--secretive entities often exploited by criminals to move dirty money

Before 2009, companies renting office space in a skyscraper at 650 Fifth Avenue in New York were unknowingly sending money to the Iranian government. If you were shopping in the retail businesses in that building, you were unwittingly financing the Iranian government.

You wouldn’t have known that you possibly were contributing to Iran’s nuclear weapons program because an anonymous shell company was set up to disguise that Bank Melli co-owned the building and collected the rent, according to court documents. The Iranian government owns and controls Bank Melli.

Federal agencies discovered the corporate shell game and the matter is now in the courts.  Fortunately that particular revenue stream to Iran has stopped.

But how many other shell companies are used to financially benefit enemy states because U.S. state laws don’t require the identity of owners to be disclosed? How many are used by drug traffickers, terrorist cells, tax cheats, pimps, arms traders, fraudsters or other criminals to further illegal activity? How many American dollars are secretly sent to groups most of us would never support?

Because of legalized corporate secrecy, we don’t know the answers to these questions.

In many states it is easier to incorporate a business than to get a driver’s license. Very few states require that the ultimate owner or owners of a business be listed on the incorporation form. Imagine applying for a driver’s license without having to reveal your identity. Yet every day in America, businesses are created without any obligation to provide this basic information.

I spoke with the person in charge of business filings in South Carolina. She acknowledged that, like almost all other states, the law does not require the state to collect information about the identities of the real persons that own or control a business. Remedying this problem might be of interest to her agency, she told me.

A state-by-state effort, however, probably wouldn’t succeed because a state like Delaware, which intentionally has notoriously lax corporation filing requirements and collects substantial revenues from incorporations, has a financial incentive to resist such efforts. If even one state remains a haven for corporate secrecy, a state-by-state solution fails.

Congress can fix this problem. The bipartisan Incorporation Transparency and Law Enforcement Assistance Act (ITLEAA) is a common sense solution that would require companies to disclose the names, addresses, and driver’s license or passport numbers of the real people who ultimately own or control them. This would make it harder for criminals to exploit the U.S. system to hide and finance their activities.

The ITLEAA lets states decide whether to make this information public or to only make it available to law enforcement with a subpoena. States can choose to respect the privacy of business owners by not requiring their personal information be made public. Yet it is difficult to overstate the importance of this information to local, state and federal law enforcement authorities engaged in pursuing criminals who currently count on anonymity to mask their illegal actions. Complying with ITLEAA would not be a significant regulatory burden on small business owners.

The U.S. Department of Justice and the Treasury Department believe this is so important, they have offered $40 million in forfeiture funds they’ve seized from criminal activity to help states with any cost of complying with the law.

No Main Street small business or consumer wants to inadvertently support an anonymous shell corporation that is laundering money, supporting terrorists, or funneling money to enemy governments. The ITLEAA will help make sure that this doesn’t happen.

Knapp is the president & CEO of the South Carolina Small Business Chamber of Commerce and chairman of the American Sustainable Business Council Action Fund.

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