A Delaware-based LLC could own a Nevada-based C corporation, which could be owned by a Panamanian company, and on and on. That makes it nearly impossible for investigators to untangle these webs. In 2012, Cyrus Vance Jr., district attorney of New York County, said this about anonymous companies: “My office, time and time again, finds its criminal investigations thwarted by an absurd system of secrecy whereby criminals can hide their money.”
In 2016, anti-slavery advocates at the Polaris Project analyzed public information to identify human trafficking occurring in businesses fronting as massage parlors across the country. The inability to identify who owned or controlled the companies was a recurring challenge in every location. In Fairfax County alone, Polaris identified 108 illicit massage businesses that were connected to 181 corporations.
I can’t help but think about the legal services that may have helped form those 181 corporations.
Because anonymous shell companies are a factor in so many kinds of cases — hiding proceeds from the ongoing opioid crisis, funding terrorism, enabling corruption in the oil and gas industries — there is large and growing bipartisan support for a bill to collect ownership information on anonymous companies. Remarkably, it might pass.
These reforms are backed by a broad coalition, made up of supporters including law enforcement agencies, progressive anti-poverty groups and large financial institutions. They advocate policies that would require companies to disclose their owners to the government. In turn, the government would share that information with law enforcement and institutions with anti-money-laundering requirements.
Yet bizarrely, and regrettably, the American Bar Association opposes these reforms. Even more bizarre are the ABA’s arguments.
It says that the way these reforms would define the “beneficial owner” behind a company would be “unworkable” — too complicated for small businesses and their lawyers. This is despite the fact that small-business groups support anonymous company reforms and the definition of ownership used in most of the bills.
The ABA also says that people could face jail time for making “paperwork violations,” even though the bill uses the same intentionality standard present in the ABA’s own guidelines on this issue to ensure that all parties would be absolved in the case of an honest mistake.
Instead of supporting needed reforms, the ABA promotes a set of voluntary guidelines it developed in 2010, even though it’s painfully clear that those guidelines aren’t working. This point was made in an excruciating manner by a Global Witness undercover investigation that aired on “60 Minutes” in 2016. In that exposé, an investigator posed as a representative of a foreign governmental official and asked for legal services to move money into the United States, using terms that should have made it obvious that he was seeking help to launder suspect funds.
Twelve of the 13 law firms approached offered advice on how to bring the possibly illicit money into the United States, recommendations that typically involved setting up a string of anonymous shell companies. One went as far as to say he wasn’t worried about jail because “lawyers run the country — we make the laws.” One of the lawyers offering advice was James Silkenat, president of the American Bar Association at the time, though he indicated that he would have had to check further before taking on the work and report any criminal activity he might have discovered.
That attitude does not reflect well on our profession. If we want to reflect the better angels of our nature, we need to speak up, be accountable for our actions and do the right thing. I hope that the American Bar Association will agree and immediately drop its opposition to anti-corruption bills calling for corporate transparency.
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