By Cyrus R. Vance Jr.
Oct 9 (Reuters) - As the District Attorney of New York
County, my office, time and time again, finds its criminal
investigations thwarted by an absurd system of secrecy whereby
criminals can hide their money without even breaking a sweat --
or the law.
Welcome to the bizarre world of anonymous shell
The average American likely knows very little about them.
But your average terrorist, drug-trafficker, tax evader or money
launderer is well versed in the art of legal anonymity. Every
day they make or move illicit money, and America's lax
incorporation laws make it easy to hide the money behind
anonymous shell companies and launder it through U. S. and
foreign banks and their branches.
Take, for example, the case of Michel De Jesus Huarte, who
defrauded Medicare of more than $4.5 million using a fake AIDS
clinic in Miami and 29 other anonymous shell companies. It took
years for law enforcement to cobble together the web of
fraudulent companies that was spread across several states, and
it confounded investigators.
Huarte was eventually caught and put behind bars, but his
scheme was no isolated incident, as shell companies are a
favorite tool of fraudsters. In October 2010, for instance, 44
members of an Armenian organized crime ring used 118 shell
companies in 25 states to defraud Medicare of $100 million.
Today, as well as during the time of my predecessor, district
attorney Robert Morgenthau, this office has investigated cases
in which anonymous shell companies were used in schemes
involving mortgage fraud, tax evasion, larceny, bribery and much
Anonymous U.S. shell companies shielded the Iranian
ownership of a midtown Manhattan skyscraper in a scheme designed
to skirt U.S. sanctions and funnel money from the United States
to Iranian agents around the world. Ironically, it was corporate
records maintained by the UK's Isle of Jersey that provided the
key break in the case. That's right, the Isle of Jersey -- a
jurisdiction many in this country consider a "tax haven" -- has
incorporation laws with greater transparency than those in our
own country. Small wonder that many foreign jurisdictions accuse
the United States of hypocrisy when it comes to international
There is no reason why anonymous corporations should exist
in the United States. Congress could eliminate them overnight,
at relatively little cost, by passing the bipartisan
Incorporation Transparency and Law Enforcement Assistance
Act, which would require states to collect information about the
real people who own or control companies. The Senate bill, which
is pending before the Committee on Homeland Security and
Governmental Affairs, is supported by a broad array of law
enforcement groups, including the Justice Department, the
Society of Former Special Agents of the FBI, and the Fraternal
Order of Police.
This bill is critical to the work of law enforcement and
district attorneys, because all too often investigations are
stymied when we encounter a company with hidden ownership. These
nameless, faceless companies can do business just like any
other, but it is difficult, if not impossible, to identify the
real people behind them.
"Follow the money" is a standard investigative strategy. Law
enforcement agents start at the street level -- the drug dealer
or low-level lackey -- and try to follow the paper trail to the
ringleader. When we can identify the owners of anonymous shell
companies, we can track down those kingpins and bring them to
An anonymous company in Nevada may be owned by another in
Delaware, which is owned by a trust in the Cayman Islands, and
so on. Criminals use layers of shell companies to frustrate
investigators and protect themselves from prosecution. Sometimes
we find alternate routes to bring evidence against the kingpins,
but more regularly our investigations are thwarted at the low
end of the criminal food chain. We may arrest low-level lackeys,
who get easily replaced. So we go after them and fail to
prosecute the top-level crooks.
This is a problem wherever anonymous companies can be
incorporated. That includes virtually every U.S. state, for very
few collect any information about the real owner of a company.
For all the grumbling about offshore shell companies, many U.S.
states are no better. Secrecy has become a big business in
places like Delaware, Nevada and Wyoming, where even the people
named on a company's board of directors are often little more
than a fiction. For a small fee an incorporation agent can
provide your company with a set of "nominees," or random
individuals, to stand in as representatives for your board of
directors and shareholders. It's a practice perfectly legal in
most states. In fact, the only two states that require
information identifying corporate owners - a standard practice
in most countries - are Maine and Alaska.
Once a company has the legitimacy afforded by incorporation
in the United States, opening bank accounts to access the global
financial system is easy. You or I have to show proof of
identity to put a few hundred dollars into a checking account,
but a corporation can instantly move millions of dollars to
distant points on the globe without so much as a real person's
name -- someone who can be held accountable if the corporation
violates a law -- associated with the transaction.
It is almost a certainty that, at this very moment, a
terrorist cell, drug cartel or corrupt government official is
using an anonymous U.S. shell corporation to finance illicit
activities. We should provide law enforcement with the tools
necessary to thwart these activities and set a standard for the
rest of the world. Congress must move quickly to pass
the Incorporation Transparency and Law Enforcement Assistance
(Cyrus R. Vance Jr. has been Manhattan District Attorney
since Jan. 1, 2010.)
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