The Shell Game

Why the Corporate Transparency Act is critical to fighting corruption

Image by julesroman from Pixabay

When I first graduated college, I enlisted in the US Army. It wasn’t just out of a sense of gratitude for all the opportunities my country gave me as a Jewish refugee from the USSR, but also because I apparently have a highly developed protective instinct and sense of justice.

I wanted to fight bad guys and protect my country from them.

I spent four years on active duty and an additional three years in the Virginia National Guard, which turned out mostly to be active duty thanks to back-to-back deployments - first to Louisiana post-Katrina, and then to Kosovo with KFOR-8.

After I finished with the deployments, I got a job as a contractor in the intelligence community, which a year later turned into a government job. I remember how proud I was, wearing that blue badge and fighting the good fight!

It was a huge honor to be part of the community that fights bad guys!

A few years later, I transferred to the Treasury Department and became Deputy Director, and then Acting Director of the office that tracked illicit finance.

Bad guys need money to operate, so following the money was absolutely critical.

How do bad guys use the financial system?

How do they gain access to the US financial system?

Who are the proxies they use to move assets once they are cut off from the global financial system?

How do we stop them?

After I left government service, I dedicated my life to managing and training teams that answered those questions.

To stop the bad guys.

The Corporate Transparency Act

The bipartisan law enacted with broad bipartisan support in 2021 required some companies to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN) - persons who own or control business entities.

I was excited about it, because I’d seen firsthand how illicit actors abuse our financial system, because technically, we’re a secrecy haven, as reported by the International Consortium of Investigative Journalists.

The requirements of the CTA were not onerous, as the current administration would have you believe.

A year ago, I went to FinCEN’s website, and registered an LLC, providing all the information other than actually hitting the “Submit” button.

It took me less than 10 minutes.

The information required is simple—less than what you have to provide to purchase real estate, open a bank account, get a library card, or buy a car.

Reporting companies must provide (1) their full legal name, (2) date of birth, (3) residential address, and (4) a unique identifying number and issuing jurisdiction from an acceptable identification document. Scan your ID and you’re done.

According to a recent Government Accountability Office (GAO) report, US-based shell companies—often structured as LLCs or corporations—can pose significant risks of illicit finance activity. (Note: I’m NOT AI; I simply know the proper use of em-dashes.)

Treasury’s 2026 National Money Laundering Risk Assessment identified several cases in which shell companies were used to facilitate financial crimes, including laundering the proceeds of drug trafficking, cybercrime, and fraud, among others, indicating the continued risk posed by shell companies.

The Trump administration last year exempted domestic companies and US persons from the requirement to disclose their beneficial owners. As long as your LLC is registered in the United States, you have to disclose nothing about who owns or controls your company.

And here’s where we come to shell companies

As I wrote last year, when FinCEN first exempted US companies from disclosing their beneficial owners, anonymous shell companies are the ultimate tool to hide and move dirty assets, evade sanctions, and store misappropriated funds. They are used to obscure assets in 85 percent of cases analyzed by Transparency International (TI) - an organization that is dedicated to fighting corruption all over the globe.

The GAO noted just a few days ago that limiting reporting requirements to foreign companies registered to do business in the United States creates loopholes which allow illicit actors to access the US financial system, hide misappropriated assets, and engage in other dirty financial activities. GAO recommended that Treasury should close the loopholes to prevent bad actors from using our financial system to hide their assets.

The CTA and FinCEN’s 2022 beneficial ownership rule explicitly exempted 23 categories of entities from reporting requirements, largely because they already are subject to federal or state regulation or must report similar information to a governmental authority.

OK, I get that.

But the LLCs that are used by illicit actors to hide their assets aren’t large corporations that are subject to reporting requirements elsewhere.

They are generally shell companies, and GAO highlights that FinCEN’s expanded exemption applies to more than 99 percent of entities that previously were required to report.

What does this mean?

It means that as long as an illicit actor can establish a shell company in the United States, they have no obligation to report who owns this entity and the door is basically closed to closer examination. Without beneficial ownership information, finding illicit financial actors, detecting illegal access to the US financial system, and blocking them from exploiting it, is nearly impossible!

The Trump administration last year decided that it would not enforce any penalties or fines associated with the beneficial ownership information reporting for domestic companies. Supposedly, this decision was part of an effort to reduce the burden on US business owners, but the burden is minor and the threat is very real.

It’s not just a threat to the US financial system, but it’s also a threat to our national security. As the Senior Director and Head of the Center of Economic and Financial Power at the Foundation for Defense of Democracies Elaine Dezenski testified in 2024, beneficial ownership information is vital to addressing the drug epidemic and other dangers to the homeland. “Indeed, we cannot successfully counter drug, terror, corruption, or other illicit threats to the United States without reliable beneficial ownership information,” Dezenski said in her testimony to the Senate Caucus on International Narcotics Control.

You can listen to her testimony below.

In addition, we are an international leader of the Financial Action Task Force (FATF), and we are obligated to collect beneficial ownership information that, according to FATF, “will help prevent the organised criminal gangs, the corrupt and sanctions evaders from using anonymous shell companies and other businesses to hide their dirty money and illicit activities.”

What are shell companies, then?

These are entities that exist primarily on paper. They do no business, they have no real staff, and are often colocated with other shell companies - sometimes hundreds of them at one address. (For those of us in compliance, that’s a huge red flag. Finding a company whose address is in a secrecy haven and which shares an address with multiple other entities should raise the hackles on the back of the neck of any analyst worth their salt.)

Shell companies do have legitimate uses. They can be established by a large corporation or a private individual to manage tax liabilities or facilitate mergers or acquisitions by creating a special purpose acquisition company (SPAC).

However, shell companies are a convenient way for illicit actors, such as money launderers or sanctions evaders, to hold and move assets. Bad guys can use shell companies to open bank and brokerage accounts. They can use these entities to transfer funds internationally. They can buy and sell real estate or other companies. And they may own copyrights and earn royalties on those copyrights.

Shell companies allow bad guys to obscure their involvement in transactions and allow them to operate in jurisdictions where they maybe otherwise banned.

In a recent NPR report, Gary Kalman, the Executive Director of TI US explained how in 2009, the United States wound up transacting with a US-based trucking company that had close ties to the Taliban.

Wait, what?

Yep, THAT Taliban - the designated terrorist group legally cannot access the US dollar or transact with US persons, so… what did they do? They hooked up with a bunch of subcontractors and other firms.

The military summary included several case studies in which money was traced from the U.S. Treasury through a labyrinth of subcontractors and power brokers. In one, investigators followed a $7.4 million payment to one of the eight companies, which in turn paid a subcontractor, who hired other subcontractors to supply trucks.

Can you imagine the risk of using Taliban-linked companies to deliver goods to deployed US military members? Explosives, biological and chemical agents, armed terrorists hiding in the back of a truck that have been transported onto a US military base… Those are only some of the risks that run through my mind!

But aside from the physical risks, allowing a designated terrorist group to access the global financial system obscured by a shell company undermines the whole point of designating the group to begin with! It allows terrorists to prosper. It allows drug cartels to fund their operations. It allows aggressive terrorist states like Russia to continue funding their war crimes in places such as Ukraine and hybrid attacks on our European allies. Anonymously.

And the use of shell companies by illicit actors is on the rise. These shell companies are increasingly used to funnel assets to sanctioned actors and other prohibited persons, to heavily sanctioned or embargoed jurisdictions, or to purchase restricted goods and services. Anonymously.

So where is the Corporate Transparency Act today?

The House Financial Services Committee last month voted to advance HR 425, effectively repealing the Corporate Transparency Act and opening the United States financial system back up to bad guys who want to use it to hide dirty money.

In addition, the passage of this bill, stupidly and hysterically named the Repealing Big Brother Overreach Act, will endanger US national security - something which Republicans are allegedly strong on.

“Anonymous shell companies put American troops in danger,” said Jodi Vittori, retired USAF LTC, and Global Politics and Security Concentration Co-Chair at Georgetown University’s School of Foreign Service. “America’s enemies, including backers of the Taliban and Hizbullah, have used anonymous shell companies to fund their operations against our forces. Hidden Chinese companies use anonymous shell companies to bypass sanctions and build up their already formidable military forces. Any vote in Congress to repeal the Corporate Transparency Act undermines the American military’s ability to do its job and helps put weapons into the hands of America’s foes.”

“After 30 years investigating international corruption and recovering over $1 billion in stolen assets, I’ve seen firsthand how anonymous US shell companies are used by kleptocrats, foreign officials, and cartels to launder illicit funds and purchase luxury assets in this country,” says Debbie LaPrevotte, a colleague and friend of mine, a former FBI agent and current Senior Investigator at Restitution Impact Ltd. The CTA helps investigators and law enforcement follow the money and track the bad guys.

The costs are largely minimal

One of the complaints by opponents is that the cost of compliance outweighs the benefits.

According to a paper published by the Heritage Foundation in 2019, the CTA would “create a large compliance burden on 11 million businesses with 20 or fewer employees and do little to aid law enforcement.”

That’s largely BS.

According to a comprehensive article by Jodi Vittori, Matthew Stephenson, and Dani Schulkin in Just Security, the claim that the CTA imposes $1 billion in compliance costs each year is deceptive in Heritage’s claim.

Heritage’s calculation works as follows: the author assumed 11 million U.S. small businesses would be covered, that each would need an hour to file at $50 per hour, and arrived at $550 million in annual compliance costs. The author then asserts, without further calculation, that “more realistic” assumptions about compliance time, hourly rates, and the use of outside counsel and litigation would push the figure “over $1 billion annually, and perhaps many billions of dollars each year.” That second figure… is not the product of any specific computation. It is the original $550 million estimate roughly doubled, based on an unquantified adjustment for lawyers and lawsuits.

Even on Heritage’s own numbers, the per-firm cost is modest. The “$1 billion” figure sounds large because there are a lot of small businesses in the United States but the total filing cost works out to under $100 per firm, an order of magnitude less than what most firms spend each year to prepare and file their tax returns. And unlike taxes, CTA reports don’t need to be filed every year: after the first filing, a company does not need to file again unless ownership changes. The per-year compliance cost for most small businesses, which tend to have fairly stable ownership, is likely to be near-trivial when properly averaged over time.

The assessment by Heritage—written several years before the CTA became law—claims that it would not be effective. Well, I guess we won’t know, will we, since the Trump administration suspended enforcement last year before the CTA database was even fully integrated into law enforcement’s toolbox.

Business as usual

Meanwhile, illicit actors—sanctions evaders, terrorists, cartel money launderers, mass murderers, and other bad guys—use US shell companies to do exactly what they have been doing - accessing the global financial system. According to Trump’s own FBI during his first term, shell companies present a “significant loophole in this country’s anti-money laundering (AML) regime.”

Under our existing regime, corporate structures are formed pursuant to state-level registration requirements, and while states require varying levels of information on the officers, directors, and managers, none require information regarding the identity of individuals who ultimately own or control legal entities upon formation of these entities.

• The US Justice Department in 2018 shut down a Shanghai-based international drug trafficking organization that used shell companies, including ones in Massachusetts, to distribute fentanyl to customers across the country.

• The DOJ in 2024 charged two foreign nationals in a scheme to export Iranian petroleum to China and use the proceeds to benefit Iran’s Islamic Revolutionary Guard Corps – Quds Force (IRGC-QF), a US-designated terrorist organization. Shaoyun Wang and Mahmood Rashid Amur Al Habsi used shell companies to launder the proceeds through the US financial system and used US companies as a “trust” to hold the profits for the IRGC-QF.

• Research done by the Organized Crime and Corruption Reporting Project showed that sanctioned Russian oligarch Alisher Usmanov has been using various shell companies for years to move his assets around the globe.

• A Financial Trend Analysis by FinCEN in 2022 noted that a Russian oligarch and his child own or control several shell-like entities registered in Cyprus and the United States.

Can the CTA be improved? Sure.

But it’s not by gutting the bill and allowing bad guys unfettered access to the US financial system.

That’s how the bad guys win.