- The Washington Times - Tuesday, November 14, 2006

Officials in all 50 states will incorporate nearly 2 million companies this year without identifying the owners — a fact a Senate subcommittee fears could help money launderers, tax evaders or terrorist financiers.

“Although the vast majority of companies formed in the U.S. serve legitimate commercial purposes, they are attractive vehicles for those seeking to launder money, evade taxes or finance terrorism,” said Sen. Norm Coleman, Minnesota Republican and chairman of the Senate Homeland Security and Governmental Affairs permanent subcommittee on investigations.

“Without company-ownership information, it is often difficult, and at times impossible, for U.S. law enforcement to identify and prosecute the criminals behind U.S. shell companies that are engaged in illicit activities,” Mr. Coleman said.

A subcommittee hearing today will explore how to reduce the potential for abuse while preserving what Mr. Coleman described as “an effective, efficient system that does not derail or unnecessarily delay” legitimate businesses.

“Criminals seeking to launder money, evade taxes or commit other crimes want to cloak their actions in secrecy,” said the subcommittee’s ranking Democrat, Sen. Carl Levin of Michigan. “And right now, that’s exactly what they get when they establish a U.S. shell company.”

At the center of the hearing is an April report by the Government Accountability Office (GAO) that said none of the 50 states routinely requires applicants to disclose who will own a corporation and most states do not require ownership information for a new limited liability company. The report said the absence of company-ownership information enables people to conceal their identities while operating as U.S. companies.

At the hearing, officials from the Justice Department, the Internal Revenue Service and the Financial Crimes Enforcement Network are expected to testify about an increase in the use of U.S. shell companies for illicit activities and how their investigations have been impeded by the lack of company-ownership information.

The GAO report noted that U.S. Immigration and Customs Enforcement (ICE) officials reported that a Nevada-based corporation received more than 3,700 suspicious wire transfers totaling $81 million over two years, but the case was not prosecuted, because ICE was unable to identify the corporation’s owners.

It also said the Financial Crimes Enforcement Network found that from April 1996 to January 2004, financial institutions filed 397 suspicious-activity reports, concerning a total of almost $4 billion that involved U.S. shell companies, Eastern European countries and U.S. bank accounts.

The report also said the FBI found that U.S. shell companies are being used to launder billions from the former Soviet Union and that the bureau has more than 100 open cases investigating market manipulation, most of which involve U.S. shell companies. It said a Justice Department report found that Russian officials used shell companies in Pennsylvania and Delaware to divert $15 million in international aid intended to upgrade the safety of former Soviet nuclear-power plants.


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