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Officials: criminal enterprises benefiting from loose requirements for creating corporations
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WASHINGTON - Lax state laws allow arms traffickers, drug kingpins and money launderers to use U.S. companies to hide their illicit activities from investigators, government officials said Thursday.
An example is the case of Viktor Bout, a Russian businessman accused of supplying dictators and warlords with weapons used in civil wars in South America, the Middle East and Africa.
Bout used a network of shell companies around the world, including a dozen U.S. corporations, to carry out his activities, Sen. Carl Levin, D-Mich., said during a Senate Homeland Security and Governmental Affairs Committee hearing.
One Delaware-based holding company linked to Bout was used in the late 1990s to sell cargo planes to the militant Taliban government then in control of Afghanistan.
"Our 50 states are forming nearly 2 million companies each year and, in virtually all cases, doing so without obtaining the names of the people who will control or benefit from those companies," Levin said.
Officials from the Treasury and Justice departments agreed the problem is serious and growing. They stopped short, however, of endorsing Levin's bill to require states to collect and log into databases the names and addresses of the actual owners of corporations.
The information on so-called "beneficial owners" would be made available as needed to financial crimes investigators.
David Cohen, assistant Treasury secretary for terrorist financing, said the ability of criminal enterprises to form corporations while hiding their true identity is a "serious vulnerability."
But he warned that the bill's definition of beneficial owners is too broad and makes compliance uncertain, time consuming, and expensive.
Jennifer Shasky, senior counsel to the deputy attorney general, said the Levin bill authorizes states to use homeland security grant money to implement the bill's requirements. But she said another funding source should be found because that money is needed to pay for responding to emergency situations.
Several senators said they also were concerned about imposing costly new requirements on states unable to pay for them and adding a new layer of bureaucracy on small businesses already struggling in a bleak economy.
Bout was arrested in March 2008 in Thailand as part of a sting operation in which U.S. agents posed as arms buyers for the Revolutionary Armed Forces of Colombia, or FARC, which the U.S. classifies as a terrorist organization.
The U.S. is seeking Bout's extradition on charges he conspired to sell millions of dollars worth of weapons to FARC. He was indicted on four terrorism-related charges in New York and could face up to life in jail.
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