Anonymous Shell Companies Are a Haven For Criminals, Manhattan DA Says

June 25, 2015 | Prachi Gupta

Manhattan District Attorney Cy Vance has been on a mission to end the anonymity of shell companies for years. On Wednesday, Vance testified before the House task force in Washington D.C. in support of passing the Transparency and Law Enforcement Assistance Act, which would require state incorporation forms to disclose the identify of beneficial owners and give law enforcement officials the ability to access that information with a subpoena or a summons. The problem with anonymous shell companies, according to Vance, is that they protect the identities of criminals.

“On a near-daily basis we encounter a company or network of companies involved in suspicious activity, but we are unable to glean who is actually controlling and benefiting from those entities, and from their illicit activity,” said Vance. “In other words, we can’t identify the criminal.”

“This is not because the entities are incorporated in an offshore tax haven like the Cayman Islands,” he continued. “That country actually collects beneficial ownership information. Often, that entity is incorporated in the United States– and it’s incorporated in the United States precisely because we don’t collect beneficial owner information. In this important way, a prosecutor sitting in the Cayman Islands is better positioned to root out terrorism finance in her own markets than I am in ours.”

Vance has previously cited several cases in which individuals had committed millions in Medicare and mortgage fraud, tax evasion, larceny, bribery and more. In one case, his office discovered that a shell company — which owned a 40 percent stake in a Midtown Manhattan skyscraper — was “being used to disguise the building’s actual owner,” Bank Melli.

“Bank Melli,” he said, “is wholly owned by the government of Iran. It was designated by OFAC as a key financier to Iran’s nuclear and ballistic missiles program, and as a banker to the country’s Revolutionary Guard and Quds force.” In other words, the company was aiding Iran’s nuclear program.

The government could save millions and prevent criminal activity simply by making the application standards a bit more transparent. But this hasn’t happened yet because it’s a process governed by individual states. Vance is hoping that the federal government will step in. “Absent federal action, this status quo will not change,” he said. “States generally do not act against financial self-interest, and incorporation fees provide an important stream of revenue. No state can be reasonably expected to raise its standards unilaterally. A uniform minimal standard would level the playing field and end this pernicious race to the bottom. Only federal action can make it so.”

(Photo: John St John)