A pair of congressional bills were introduced on Wednesday (Feb. 3) with the stated goal of trying to make money laundering slightly more difficult. The tact of the bills simultaneously introduced in the U.S. House and U.S. Senate? To force people filing papers of incorporation to disclose all beneficial owners—and to hand over U.S. passport or state driver’s license numbers for all of those beneficial owners.
The move—by two House members, Rep. Carolyn Maloney and Rep. Peter King, and Sen. Sheldon Whitehouse—to introduce the Incorporation Transparency and Law Enforcement Assistance Act is trying to bring the U.S. closer to the level of many European countries, which already require proof of ownership identity. (See related podcast: Transaction Laundering: How Not To Get Taken To The Cleaners.)
“Right now, the United States is a preferred destination for terrorists, drug traffickers, tax cheats, and other criminals who want to hide the gains from their illegal activity in anonymous business entities,” said Whitehouse. “This simple change will help law enforcement have the tools to root out this dirty money.”
Maloney added: “Our legal system should not protect the rights of bad people to do bad things in secret. Our message is simple: tell us who the real owner is, or take your business elsewhere.”
“Criminals are taking advantage of state laws by establishing firms – often without a physical presence or business activity – to access our banking system,” King said. “This simple requirement would enable law enforcement to stop money from flowing across our borders to terrorist organizations.”
Well, not quite. There is no money allocated in the bill to provide investigative funds to authenticate the submissions. If the intent is to launder criminal—even terrorist—financing, then making up bogus names of the owners and giving them fake passport or driver’s license numbers is not especially burdensome.
According to one Capitol Hill staffer familiar with the legislation—and who insisted on anonymity—the online application process does not seek a picture of the passport or the driver’s license, but merely a number. Although those numbers are easy to verify, it’s unlikely many states would bother unless they had a reason to do so. And it’s the money launderer’s job to make sure that the state clerks are given no such reason.
Presumably, in-person applications—which today are rarities—would ask to see and examine the actual documents.
And in case a software program does a perfunctory check that the name given is associated with the name associated with the document, money launderers could merely use the numbers of actual documents. That way, a check would appear to authenticate the application, unless someone actually called to ask if that person is affiliated with that company—which would be very unlikely.
Deana Rich, president of Rich Consulting, agrees that the issue of money laundering needs to be addressed, but she’s much less enamored of trying to solve it with a new law.
“I do not like legislation. Although I agree with the concept, having the government legislate good behavior can cause more issues then they fix. If we self-regulate, ETA Guidelines, MAC communications, then we are better off and we keep the bad guys at bay,” she said.
Specifically, she argues that more stringent processes can address many of the laundering concerns.
“Acquirers can help eliminate the use of shell companies through diligent underwriting. There was a company in Wyoming that helped set up shell corporations and those corporations ended up being used for merchant accounts selling illegal goods or services,” Rich said. “That information was shared through MAC and now acquirers know to look for the Wyoming address during underwriting.”