From the Editor: Lack of Corporate Transparency in the United States is Criminal

By Kieran Beer

Fighting sex trafficking by treating it as a financial crime may be one of the best ways to free its victims and punish those who profit from enslaving others.

Prosecutions for money laundering built on financial data can spare the already traumatized victims of trafficking from needing to testify against their abusers, Catie Hart, a sex-trafficking survivor now working with not-for-profit AnnieCannons, told me in an interview for the March-May issue of ACAMS Today.

Unfortunately for victims and their advocates in law enforcement and the nonprofit community, significant legal and administrative obstacles still impede investigators from ‘following the money’ to seize assets and ultimately incarcerate traffickers in most cases.

Case in point: the Orchids of Asia Day Spa, a massage parlor in Jupiter, Florida, shut down by local police on March 1 following a hidden camera sting. The investigation has informed indictments against 300 alleged patrons, including New England Patriots owner Robert Kraft, as well as the arrest of the company’s manager and nominal owner.

But like many of the estimated 9,000 other illicit parlors operating from strip malls across the United States, the true owner, or owners, of Orchids of Asia possibly remain at large, hidden by the near-impenetrable veil of corporate secrecy provided by state governments and generally ignored by the federal government.

Police frequently ensnare “customers,” victims and their managers—typically older women called “mamasans”—when they move against a massage parlor or nail salon. Meanwhile, the ultimate financial beneficiaries from the exploitation and suffering often go free.

“Very little is known of the behind-the-scene owners,” Bradley Myles, chief executive of the anti-human trafficking not-for-profit Polaris Project, told The New York Times after the shutdown of Orchids of Asia. “They are hiding behind shell companies, hiding behind mamasans. They are hiding behind fake people.”

Several years of efforts by some state and federal lawmakers to address the abuse of corporate entities have stalled. State governments want to protect the lucrative fees they collect from registering firms with few to no questions asked, and their allies in Congress have blocked even the most basic transparency requirements from moving forward.

Many state governments require less personal information to register a company than they do to issue a library card, according to a report released this month by Global Financial Integrity. Twenty-two states and the District of Columbia require neither an address from the new firm nor the name of its beneficial owner, the Washington, D.C.-based advocacy group found.

Given the resistance in Congress to overruling these states by mandating a national standard for corporate transparency, the Financial Crimes Enforcement Network’s new customer due-diligence rule is, at best, a stopgap measure.

FinCEN’s rule requires that financial institutions take steps to identify a limited category of nominal owners when a legal entity opens an account or is involved in “a risk-related trigger or event.” The rule only provides the starting point for an investigation, while the true owners can remain anonymous simply by keeping their stakes below 25 percent.

The lack of a federal standard for corporate transparency and the current hodgepodge of state incorporation rules are nothing more than a national disgrace, and in fact make the United States no different from the most egregious secrecy havens linked to the Panama Papers scandal, and more recently the Troika Laundromat.

Recent months have seen renewed interest in Congress for a national register of corporate owners.

The Corporate Transparency Act of 2019, sponsored by Rep. Carolyn Maloney (D-NY) would task FinCEN with collecting ownership data from U.S. legal entities and making it accessible to financial institutions. A competing proposal would give the job to the IRS.

But if past is prologue, there is ample reason to question if any of the current proposals to mandate corporate transparency will become law.

An attorney working behind the scenes on a plethora of Bank Secrecy Act reform bills told me he was not optimistic.

For the victims of organized crime, especially those who are trafficked for labor or sex, let’s hope he is wrong. Both financial institutions and law enforcement have a common interest in overcoming the self-interests of states that have heretofore prevented transparency.

Contact Kieran Beer at

Follow me on Twitter @KieranBeer

Topics : Anti-money laundering , Know Your Customer , Human Trafficking
Source: Nonprofits/Private Organizations , U.S.: Department of Justice , U.S.: Courts
Document Date: March 28, 2019