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The United States has taken a major step in tackling the use of shell companies to facilitate financial crime. But Syed Rahman, of business crime specialists Rahman Ravelli, believes the legislation falls short.

Author: Syedur Rahman  11 January 2021

Posted in: Anti-Money Laundering.

A major US route for money laundering and tax evasion involving shell companies has been closed by a new law

The Corporate Transparency Act forces "beneficial owners" behind shell companies to disclose their identities to the US Treasury's Financial Crimes Enforcement Network (FinCEN).

Although only the Treasury and law enforcement officials will be able to access the FinCEN database containing this information, commentators have said the Act will help prevent corrupt political figures and those involved in organised crime and tax evasion laundering their proceeds of crime.

The United Nations estimates that between $800 billion and $2 trillion is laundered annually through the global financial system. The United States has been identified by anti-corruption campaigners as an attractive place for those looking to launder money via anonymous companies.

The new legislation carries penalties of up to two years in prison and a $10,000 fine for failing to report the beneficial owner of a company. It has attracted criticism for not making the FinCEN database open to the public or media scrutiny. The International Consortium of Investigative Journalists was behind the 2016 release of the 11.5 million documents known as the Panama Papers, which revealed how politicians, celebrities and business figures were going to elaborate lengths to hide money offshore.

The new legislation is certainly a positive step for law enforcement when it comes to tackling global corruption. But it is not perfect, as difficulties remain for victims who instruct legal practitioners to recover losses. The estimated figures identified by the United Nations for money laundering give a stark illustration of the scale of the problem. Opening the database to the public would certainly have gone some way to tackling this.

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Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, civil recovery, cryptocurrency and high-stakes commercial disputes.

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