Washington Attorney General Bob Ferguson on Aug. 2 led a bipartisan group of 24 attorneys general to urge leadership of the House Financial Services Committee to advance legislation improving transparency of shell corporations by requiring them to disclose who controls and profits from their activities.
Anonymous shell corporations can be used to obscure participants in financial transactions and can also allow criminals to launder money without accountability. State law enforcement investigations can stall when the identity of the individuals who control or profit from the companies is hidden.
“Our laws should not enable criminals to exploit these loopholes for their financial gain,” Ferguson said. “We must ensure that our investigators have the information and access they need to solve crimes.”
The letter to Committee Chair Jeb Hensarling, R-Texas, and Ranking Member Maxine Waters, D-Calif., co-led by Ferguson and Colorado Attorney General Cynthia Coffman, stresses not only the importance of transparency, but the necessity of ensuring that state and local law enforcement have access to the information.
Shell companies have made headlines lately, most recently in coverage surrounding the recordings between then-candidate Donald Trump and his former attorney Michael Cohen. On the recording, Trump and Cohen can be heard discussing creation of a shell company to make payments, allegedly to bury a potential news story about an affair by the president. While this audio makes the beneficial owner of the company clear, it illustrates the utility of shell companies to hide transactions from disclosure, including to law enforcement.
According to a report released earlier this year by Polaris, an organization that works to eradicate human trafficking worldwide, current law in the United States allows trafficking operations like illicit massage parlors to hide their beneficial owners, and “flourish in secrecy, shielding traffickers from law enforcement and prosecution.” Polaris estimated more than 9,000 parlors operate nationwide, with nearly $2.5 billion in earnings.
A 2016 report by Washington, D.C.-based consumer group Fair Share details cases were opioid trafficking was connected to shell companies. The report details drug cartels’ use of shell corporations to launder profits by investing in ventures including racehorses in Oklahoma.
“As you know, state attorneys general are the top law enforcement officers in our respective states,” the attorneys general wrote in their letter. “We are leading efforts to protect residents of our states by addressing the opioid epidemic, combating human trafficking and investigating and prosecuting other crimes.”
Without more transparency, however, investigators cannot effectively follow the money to uncover who is benefiting from a shell company’s transactions. “Unfortunately, our investigations can stall when these companies are used to hide the identity of the individual or individuals who control or profit from the company,” the letter states.
Also joining the letter are Attorneys General from California, Connecticut, Delaware, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, Mississippi, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont and Virginia, as well as the District of Columbia, the Northern Mariana Islands, and Puerto Rico.