Attorney General Peter F. Kilmartin today joined 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.
"Individuals and organized crime outfits should not benefit from illicit criminal activities by hiding behind shell corporations," said Attorney General Kilmartin. "Law enforcement should be allowed access to vital information of who is behind these corporations to aid in the investigation of illegal networks operating in our communities."
The letter to Committee Chair Jeb Hensarling, R-Texas, and Ranking Member Maxine Waters, D-Calif., co-led by Washington Attorney General Bob 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 corporations have also been in the news 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 U.S. 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 where opioid trafficking was connected to shell companies. The report describes 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 write. "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."
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, Vermont and Virginia, as well as the District of Columbia, the Northern Mariana Islands and Puerto Rico.