A Needle In A (Big Unlabeled) Haystack

March 18th, 2014

While President Vladimir Putin’s name didn’t make the first round of sanctions issued against Russian officials yesterday, the Obama administration said that his addition might not be far off, according to a recent article in the Associated Press.

How this will affect Russian actions in Ukraine remains to be seen, but with President Putin in the crosshairs of possible future sanctions, an article in Quartz posed a very relevant question:

Would the US even know if someone like, say Russian President Vladimir Putin was keeping money in its backyard?

US presidential spokesperson Jay Carney was asked this question today. He declined to answer. But the fact of the matter is that American laws support all kinds of secretive financial structures that corrupt foreign officials have long taken advantage of.

In the wake of Ukrainian President Viktor Yanukovych’s downfall, we learned that he had created a complex network of shell companies and anonymous bank accounts, throughout Europe, to control many of his assets, including his multi-million dollar mansion. But the principal catalyst for our knowledge of these illicit financial flows was his ousting from power, and subsequent recovery of documents, some of which are now known as the ‘Yanukovych Leaks’. Those still in power remain much more elusive.

So, does the U.S. actually know exactly who is keeping money in its banks?

Probably not.

With lax financial laws in many U.S. states, it’s quite easy to register a company without providing any sort of information on who is the beneficial owner, the person ultimately profiting or controlling the assets. This type of concealment inherently draws those who wish to funnel money that was perhaps gained illicitly. Viktor Bout, a Russian arms dealer recently sentenced to 25 years in prison, used multiple addresses in Delaware to create shell companies that financed his operations.

The broader point, which should not be overlooked, is the vital need to move from our current system, marked by opaqueness, to one of enhanced transparency. The European Union is already making steps in the right direction.

Earlier this month, the European Parliament voted to create publicly accessible registers of beneficial ownership information. With such registers, unraveling complex financial webs used to funnel money illicitly would become much easier.

It seems like common sense, but before you can impose sanctions on an individual, it would help to know, at least, where they’ve stowed the money in the first place.

Written by Christian Freymeyer

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