The U.S. Is a Good Place for Bad People to Stash Their Money
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- 17 Jul 2020
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When Viktor Bout—the arms dealer extraordinaire who inspired the 2005 Nicolas Cage movie Lord of War—sought to set up anonymous shell companies, according to a Senate panel, he turned to, of all places, the U.S. So too, court documents indicate, did former Ukrainian Prime Minister Pavlo Lazarenko, a man who has landed on Transparency International’s list of the 10 most corrupt officials. Per a Senate report, the same was true of the accused kleptocrat Teodoro Nguema Obiang Mangue, the son of Equatorial Guinea’s president, who went on to forfeit more than $30 million worth of mansions and sports cars to American officials (but somehow managed to hold onto Michael Jackson’s crystal-studded glove).
For this trio, America happened to provide the proper marriage of a stable, independent legal system and complete anonymity. While traditional offshore havens from the United Kingdom to the Cayman Islands have recently lurched, however unwillingly, toward greater transparency and financial oversight, people like Lazarenko and Obiang eyed the U.S., the jurisdiction that over the past few years has cemented its position as perhaps the foremost shell-company provider globally. “In some places [in the U.S.], it’s easier to incorporate a company than it is to get a library card,” said Joseph Spanjers of the think tank Global Financial Integrity last year, describing the ease with which anyone could set up a shell company in states such as Delaware, Nevada, or Wyoming.
Anonymous shell companies, business entities that exist solely for the purpose of masking ownership of wealth, property, and other assets, serve as a middleman of sorts, helping those behind them move funds from one place to another. Shell companies in and of themselves aren’t illegal, or even necessarily bad: Not only can they help pool investors’ resources or guard trade secrets, but many celebrities use them to keep prying gossip outlets from locating their assets. Shell companies can also provide politicians in less stable countries a place to keep assets safe from kidnappers and thieves.
To that point, Lazarenko's attorney, Daniel Horowitz, described his client's uses of shell companies as perfectly legal defenses against corruption by rival politicians. “It is standard in ALL business to have different companies handling different types of business and transactions,” said Horowitz in an email, objecting to the labeling of his client as a kleptocrat. “To some degree, money, assets and people had to be put outside the control of the dictator of Ukraine so that the democratic opposition could have a war chest.” Meanwhile, the attorney representing Obiang, who is currently on trial in Paris for corruption, has told NBC News, "What Mr. [Obiang] did in his country was perfectly legal." (A lawyer representing Viktor Bout did not respond to a request for comment.)
The problem, though, is that shell companies, through their attendant anonymity, also enable large-scale money laundering. Because of the lack of clarity on who’s benefiting from shell-company ownership, as Transparency International noted last year, “Nobody knows how many shell companies are used for legitimate purposes, and how many for dodgy purposes.”
And as has been the case for several years, anyone with a bit of money can set up their own American shell companies, hiding their wealth from whoever may be after it. This includes arms dealers and despots from sub-Saharan Africa and Central Asia, as well as drug cartels, oligarchs, and autocrats. Anyone trying to keep their malevolence inconspicuous, even those acting directly against American interests, need not look far to cloak their wealth. After all, one of the U.S. companies allegedly tied to Bout was used to funnel arms to the Taliban. As one lawyer specializing in shell companies recently wrote, “It’s not entirely beyond the realms of possibility that ISIS could be operating companies and trust funds domiciled in Delaware.”
The notion that the U.S. is the world’s leading shell-company haven, or that the country’s foes may protect their wealth via American anonymity, may seem laughable. To wit, the U.S. government has led a recent anti-kleptocracy drive that, while still nascent, has already begun paying dividends, targeting and freezing hundreds of millions of dollars tied to countries like Uzbekistan and the aforementioned Equatorial Guinea. The federal government has also recently implemented oversight mechanisms for anonymous real-estate purchases from New York to Miami to San Antonio, helping model how to combat international, property-based money laundering (and at the same time helping to stem the spiraling costs of living in a city, as such purchases drive the price of housing up). And new bipartisan bills introduced in the Senate and the House aim to reduce anonymity in American-based shell companies. While similar bills have failed in the past, these proposed pieces of legislation have sparked an optimism that pro-transparency advocates haven’t known in years.
But at the same time, as I describe in a forthcoming report published by the Hudson Institute, a think tank, the U.S. makes it unbelievably easy to set up a shell company with bad intentions. In the most comprehensive global survey of shell companies to date, a trio of researchers, posing as potential customers, prodded providers across dozens of international jurisdictions for identification requirements. Surprisingly, some of the jurisdictions most concerned with proper means of identification—names, addresses, and the like—were traditional offshore havens, including Jersey, the Isle of Man, and British Virgin Islands.
