Should it be easier to form a company than to get a library card?

Money laundering and the terrorist financing may be seen as quite distinct activities; money laundering aims to clean dirty money, whereas terrorists are often trying to obscure assets of a legal origin - however, the two are inextricably linked.

According to the U.S Treasury Department, "money laundering facilitates a broad range of serious underlying criminal offenses and ultimately threatens the integrity of the financial system" with estimates that between $800 billion and $2 trillion is laundered each year - equivalent to 2 to 5 per cent of the global economy.  

And while there are laws in place to prevent money laundering in the US - making it harder for criminals to clean their dirty cash - there is one gaping hole in the financial system which if closed would go a long way into helping crack down on terrorists, drug kingpins, people traffickers and those evading US sanctions: shell companies.

You may think of shell companies as offshore havens in places like Panama or the British Virgin Islands, where money launderers set up fake companies in countries with more relaxed laws to enable them to move their dirty cash around undetected. But in fact, this practice is a lot closer to home. The US is actually one of the world's leading enablers of financial secrecy due to lax regulations around setting up a company.

It is so easy to form a company in America that higher levels of proof of identity and personal details are required to get a library card than to form a company. This means, despite having numerous anti-money laundering rules and practices in place, the fact that company ownership information is not required in the US is putting the country’s economy at serious risk.

But the good news is, this is set to change.

On July 22 the US House passed a landmark, bipartisan anti-corruption measure to modernize U.S. anti-money laundering laws for the first time in 20 years. If approved by the Senate, the legislation, known as the Corporate Transparency Act, will require companies to disclose information about their true, “beneficial” owners to a secure federal database accessible by law enforcement and relevant financial institutions.

Gary Kalman, the director of the US Office of Transparency International said: “This measure represents an incredibly important step that would immediately reduce the potential for dangerous manipulation of our financial system." He also highlighted the broad level of support behind it by saying it was one of the few bills that "has Dow Chemicals and Friends of the Earth on the same side," and it was about 'when' and not 'if' it is going to pass.

 But, the fact is, it is not law yet, meaning there are still thousands of 'shell companies' operating out there, and more being formed every day, putting the US economy at serious risk. And that is why it is so important that financial institutions take their anti-money laundering obligations seriously, as John Dobson, CEO of leading AML firm SmartSearch explains:

“The only way to ensure you know the true identity of who you are working with is by employing an electronic verification system. Electronic platforms can identify and verify individuals and businesses at the touch of a button and automatically screen for Sanctions and PEPs giving you a pass or check result in a matter of seconds.

“Our platform is also able to complete Ultimate Business Owner checks enabling you to see who is controlling any business – even with complicated corporate structures with multiple subsidiaries and parent companies.

“We also offer comprehensive Know Your Business checks which can access four years’ worth of profit and loss statements, balance sheets, key ratios and payment and credit history and information on whether the business has ever filed for bankruptcy at the click of the button. This gives financial institutions the information they need to ensure the individuals and businesses they are working with are who they say they are.”