November 13th, 2006 - Washington, D.C. - Washington, D.C. – On Tuesday, November 14th, the U.S. Senate Permanent Subcommittee on Investigations will hold a hearing examining the issue of states incorporating nearly two million new U.S. companies each year without identifying the company owners, and the law enforcement problems that result when some of these companies become engaged in money laundering, tax evasion, or other crimes.
“Although the vast majority of companies formed in the U.S. serve legitimate commercial purposes, they are attractive vehicles for those seeking to launder money, evade taxes, or finance terrorism,” said Sen. Norm Coleman (R-Minn), Chairman of the Subcommittee. “Without company ownership information it is often difficult, and at times impossible, for U.S. law enforcement to identify and prosecute the criminals behind U.S. shell companies that are engaged in illicit activities. This hearing will provide an opportunity to explore avenues to reduce the potential for abuse, while preserving an effective, efficient system that does not derail or unnecessarily delay legitimate business.”
“Criminals seeking to launder money, evade taxes, or commit other crimes want to cloak their actions in secrecy,” said Sen. Carl Levin (D-Mich), the Subcommittee’s ranking Minority Member. “And right now, that’s exactly what they get when they establish a U.S. shell company. While other countries collect company ownership information but restrict disclosure, in the United States, we don’t even collect it. We generally have no idea who owns our companies, because states don’t ask for ownership information. Our failure to identify company owners not only violates a U.S. promise to comply with international anti-money laundering standards, it invites criminals to set up and misuse U.S. companies. We ought to be setting an example for the rest of the world on this issue, not lagging behind other countries. It’s time to get our house in order.”
The hearing will feature a April 2006 Government Accountability Office (GAO) report prepared in response to a Levin-Coleman request. This report, “Company Formations: Minimal Ownership Information Is Collected and Available,” reviews the legal requirements in all 50 states to set up non-publicly traded corporations and limited liability corporations (LLCs). It found that none of the states routinely requires applicants to disclose who will own a new corporation, and most states do not require ownership information for a new LLC. GAO also determined that the absence of company ownership information enables individuals to conceal their identities while operating as U.S. companies.
At the hearing, officials from the Department of Justice, the Internal Revenue Service, and the Financial Crimes Enforcement Network are expected to testify that they have seen an increase in the use of U.S. shell companies for illicit activities, and their investigations have been impeded by the lack of company ownership information.
The GAO report provided the following examples of law enforcement investigations involving U.S. shell companies:
* Immigration and Customs Enforcement (ICE) officials reported that a Nevada-based corporation received more than 3,700 suspicious wire transfers totaling $81 million over 2 years; but the case was not prosecuted, because ICE was unable to identify the corporation’s owners.
* The U.S. Treasury’s Financial Crimes Enforcement Network (FINCen) found that, between April 1996 and January 2004, financial institutions filed 397 suspicious activity reports, concerning a total of almost $4 billion that involved U.S. shell companies, East European countries, and U.S. bank accounts.
* The FBI told GAO that U.S. shell companies are being used to launder as much as $36 billion from the former Soviet Union. The FBI also reported that they have 103 open cases investigating market manipulation, most of which involve U.S. shell companies.
* The Internal Revenue Service uncovered a scheme involving three individuals who set up U.S. shell companies to conceal nearly $9 million in taxable income in secret accounts in the Turks and Caicos Islands and other foreign countries.
* A Department of Justice report revealed that Russian officials used shell companies in Pennsylvania and Delaware to unlawfully divert $15 million in international aid intended to upgrade the safety of former Soviet nuclear power plants.
“Over a two year period, one Nevada-based corporation received more than 3,700 suspicious wire transfers totaling $81 million, but federal law enforcement was unable to prosecute the case because it was impossible to identify the corporation’s owners. This egregious lack of transparency presents real risks to our national security,” Coleman added.
“We ought to know who is behind U.S. companies doing business in our country, but right now we don’t,” said Levin. “The result is that anonymous companies are able to engage in illegal activities such as money laundering, tax evasion, or securities fraud, knowing that law enforcement has no ready way to identify the company owners. Today people have to supply more information to get a driver’s license than to form a U.S. company. The national security risks and criminal threats posed by anonymous shell companies mean that our states, law enforcement, and others need to start working on reasonable and cost-effective solutions.”
Hearing Information
What: Failure to Identify Company Owners Impedes Law Enforcement
Where: Room 342 of the Dirksen Senate Office Building
When: Tuesday, November 14, 2006, at 2:30 p.m.
Contact(s):
Leroy Coleman, (202) 224-5641
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