Senate Panel Explores How Criminals Use Shell Companies
A Senate committee held a hearing on how drug traffickers, terrorists, and other criminal actors use shell companies to launder money and hide their illegal activities from law enforcement.
The hearing before the Senate Caucus on International Narcotics Control was titled “Opaque Shell Companies: A Risk to National Security, Public Health, and Rule of Law.”
“In the battle with narco-lords, a little sunlight into the shadows of the dark economy can go a long way,” said Co-Chair Sheldon Whitehouse (D-RI) in his opening statement.
Lawmakers zeroed in on how drug cartels use shell companies to launder money, helping fuel the fentanyl and synthetic opioid epidemic, which is killing more than 100,000 Americans a year.
“Those deaths occur because drug cartels make money — money that is only valuable because it is laundered through our powerful but unguarded financial system,” said witness Elaine Dezenski, Senior Director and Head of the Center on Economic and Financial Power (CEFP) at the Foundation for Defense of Democracies (FDD).
FAA Under the Microscope
Co-Chair Chuck Grassley (R-IA) focused on a 2020 Government Accountability Office (GAO) report that found cartels and other bad actors are exploiting loopholes in the airplane registration process, registering planes under phony U.S. IDs.
The cartels can register the planes in the name of a trust company that shields the name of the actual owner.
“Those tail numbers shield the planes from foreign law enforcement scrutiny. This allows millions of dollars’ worth of drugs to sail through airspace undetected,” said Senator Grassley.
GAO Forensic Audits and Investigative Service Director Rebecca Shea testified that the Federal Aviation Administration (FAA) implemented just three of the 15 recommendations and that the FAA told GAO that it currently does not have authority to deny registration to Office of Foreign Assets Control (OFAC) sanctioned individuals.
“It’s a red flag and a risk that FAA should be managing,” said GAO’s Shea.
Corporate Transparency Act
So what’s to be done about it?
That’s where the Corporate Transparency Act comes into play. The act, which took effect on January 1, 2024, established a Beneficial Ownership Registry, which requires certain entities to name their true owner to a directory maintained by the Financial Crimes Enforcement Network (FinCEN).
“Prior to the CTA, all 50 U.S. states required more personal information to get a library card than they did to establish a legal entity. Now, law enforcement officers have new tools to follow the money,” said witness Erica Hanichak, Director of Government Affairs for the Financial Accountability and Corporate Transparency (FACT) Coalition.
However, there is a wrinkle.
The CTA was ruled unconstitutional in March by a federal district court in Alabama. That is currently being appealed. The ruling is said to apply to only the plaintiffs in the case.