Financial Transparency Coalition

U.S. Anonymous Shell Companies Facilitating Wildlife Crime, Arms Trafficking, Drug Smuggling, and Terrorist Financing – Explains Cardamone in Written Testimony Submitted to Committee

What: U.S. Senate Committee on Foreign Relations Hearing
Title: “Ivory and Insecurity: The Global Implications of Poaching in Africa”
Date: Thursday, May 24, 2012
Time:  10:30am ET
Location: Room 419, Dirksen Senate Office Building, Washington, DC

WASHINGTON, DC – Global Financial Integrity (GFI) Managing Director Tom Cardamone will testify tomorrow  before the full U.S. Senate Committee on Foreign Relations on the global security implications of poaching in Africa, explaining how the opaque structures in the international financial system—particularly anonymous American shell companies—facilitate illicit wildlife trafficking, drug smuggling, arms dealing and even terrorist financing.

In his written testimony, Mr. Cardamone writes:

In recent years, organized crime syndicates, militias, and even terrorist elements have taken notice of the profits that can be made in the illegal trafficking of wildlife, generating an alarming up-tick in the scale of the industry and posing serious national security concerns for the United States and our partners.

He continues:

As organized crime, militias, and terrorist entities have become more involved in the illegal trade of wildlife in recent years, the use of sophisticated money laundering schemes to move their profits and shield the organizations from detection and prosecution are routinely detected. Illegally poached ivory from some 300 Zambian elephants was discovered by Singapore customs officials in 2002, and “investigations revealed a complex network of shell companies and pseudonyms used in procuring the ivory.” Not surprisingly, as of 2010, eight years after the ivory was confiscated, “no significant members of the network have been prosecuted.”

Anonymous Shell Companies

Highlighting the wide-spread use of anonymous shell companies to launder the money of organized, transnational crime, Mr. Cardamone writes:

The use of anonymous shell companies, often layered via multiple jurisdictions, is one of the most effective tools available to money launderers and organized criminals, obscuring the money trail and impeding law enforcement investigations.  They are frequently used not just by wildlife traffickers, but also by American and foreign terrorists, narco-traffickers, arms dealers, corrupt foreign officials, tax evaders, rogue states, and other criminals, to easily launder their money.

The U.S. Financial System as Facilitator

Commenting on the role of the United States financial system in facilitating this crime, Mr. Cardamone states:

Unfortunately, lax regulation and disparate state statutes make the United States a breeding ground for anonymous shell corporations.  It is estimated that nearly two million companies are established in the U.S. each year, and the vast majority of those companies are not required to provide any information—neither names nor addresses—about the beneficial owners of the firms.  And by “beneficial owner” I am referring to a person, rather than a law firm or agent, which controls or benefits financially from the activities of the incorporated entity.  This lack of information means that shell companies with hidden owners are opaque to law enforcement and tax authorities.  It also means that when illegal activity is suspected, an investigation often run into dead-ends.

National Security Implications

Explaining the threat to U.S. national security, he continues:

Of course, this situation is ripe for exploitation by foreign and domestic terrorists, drug cartels, arms dealers, foreign kleptocrats, tax evaders and traffickers of all stripes.  While most shell companies are likely to be involved in legitimate business, U.S. national security is left to chance because of our inability to tell the difference between an LLC created by a dentist in Texas from one set up by a government entity in Tehran.

Indeed, only after a long and expensive investigation was it discovered that forty percent of the property located at 650 Fifth Avenue in New York was, in fact, owned by Iranian citizens who represented Bank Melli, the National Bank of Iran.  The reason the investigation was delayed was that the individuals hid behind a partnership, which had, as one of its components, a shell company formed in New York which itself was controlled by an anonymous company set up in the island of Jersey.

Moreover, Viktor Bout, the so-called “Merchant of Death,” who provided arms to the Taliban, the FARC and to child soldiers in Sierra Leone, controlled at least a dozen shell corporations, which were registered in Texas, Florida, and Delaware.  With benign-sounding names such as the “Central African Development Fund” or “Daytona Pools,” Bout was able to outwit and outrun law enforcement for decades until his recent arrest and conviction.

Further, a recent report from the World Bank revealed that the United States was the locale of choice for corrupt foreign politicians establishing offshore shell companies to launder their money and gain access to the international financial system.

Solutions: Incorporation Transparency and Law Enforcement Assistance Act

Discussing potential solutions to the problem, Mr. Cardamone notes that the bi-partisan Incorporation Transparency and Law Enforcement Assistance Act (S. 1483) would ban the formation of anonymous U.S. shell companies, which play a key role in many illicit activities.

Global Financial Integrity last week joined forty other business and civil society organizations in sending a letter to every member of the House and Senate urging them to co-sponsor the act.

In his remarks, Mr. Cardamone also addresses major recent anti-money laundering compliance lapses among U.S. financial institutions, and he discusses ways in which the Financial Action Task Force (FATF) and the G8 can take action to curtail transnational criminal enterprises like illicit wildlife trafficking.

Click here to download the full written testimony.  Click here for more information on the hearing.

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Contact:

Clark Gascoigne
cgascoigne@gfintegrity.org
+1 202 293 0740 ext. 222

Footnotes:

1. Click here to download Tom Cardamone’s full written testimony in PDF format.
2. Click here to visit the hearing page on the Senate Foreign Relations Committee Website.
3. Haken, Jeremy. “Transnational Crime in the Developing World,” Global Financial Integrity, February 2011: p. 11-14. http://transcrime.gfintegrity.org/.
4. On August 2, 2011, Senators Carl Levin (D-MI) and Charles Grassley (R-IA) introduced the bipartisan Incorporation Transparency and Law Enforcement Assistance Act (S. 1483). Representatives Carolyn B. Maloney (D-NY), Stephen F. Lynch (D-MA) and Barney Frank (D-MA) introduced a companion bill (H.R. 3416) on November 14, 2011. These bills would require companies to disclose information about the real people who own or control them (often called the “beneficial owners”) at the time they are created.
5. Global Financial Integrity, Global Witness, and FACT Coalition, “CSOs, Business Groups Call on Congress to Support Incorporation Transparency, Ban US Shell Companies,” May 16, 2012, http://www.gfintegrity.org/content/view/509/70/.
6. FACT Coalition, “Anonymous U.S. ‘Shell’ Corporations: A National Security Code Red,” http://www.gfintegrity.org/storage/gfip/documents/FACT/fact_sheet_beneficial_ownership.pdf.
7. Reuters series: “Shell Games: Articles in this series explore the extent and impact of corporate secrecy in the United States,” June – December 2011.
8. The Economist endorses banning anonymous shell companies: “Corporate Anonymity: Light and Wrong,” Jan 21, 2012
9. World Bank / UNODC, “Puppet Masters: How the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About It,” October 24, 2011, accessed May 22, 2012, http://www1.worldbank.org/finance/star_site/documents/Puppet%20Masters%20Report.pdf.

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Global Financial Integrity (GFI) is a Washington, DC-based research and advocacy organization which promotes transparency in the international financial system.

For additional information please visit www.gfintegrity.org.

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