Though it may seem fanciful, there is a powerful tool that is tailor made for simultaneously combating North Korean nukes, Russian aggression, Chinese influence, and Iranian maleficence. This tool is beneficial ownership. In practice, existing beneficial ownership rules in the United States require compliance departments to collect, verify, and store data on clients, all at a cost to the consumer.
Proposed legislation preserves privacy, but requires businesses to submit and maintain basic information about ownership structures at the federal or state level, allowing better communication between the private sector and national security agencies. Almost all sanctions legislation has beneficial ownership language in it. Passing a general beneficial ownership law will give U.S. sanctions the teeth they need to truly deter the authoritarian scourge from entering our system.
Beneficial ownership is not an exact science, nor is it a panacea. Most proposals currently in Congress are simple and pragmatic approaches to increasing transparency while protecting privacy. The idea has been floated in the United States for years, Britain recently passed beneficial ownership legislation and extended it to its overseas territories, and Europe is in the process of implementing its version.
Beneficial ownership is the core recommendation of the Financial Action Task Force, a powerful intergovernmental body created by the G-7 in 1989 to combat money laundering and expanded in 2001 to combat terrorist financing. Beneficial ownership is the only pillar of the group on which the United States continues to fall short. However, there are four good reasons to take action: North Korea, China, Russia, and Iran.
North Korea is well integrated into the underbelly of the global economy. Its tentacles span the globe through operatives usually attached to embassies. As a result, Kim Jong Un laughs in the face of “maximum pressure” because his rogue regime has anonymously infected the supply chains of major multinational corporations and governments.
China directly supports North Korean efforts to sell missiles to Syria and Iran, and provides cover for Pyongyang’s illicit financing through secretly held Hong Kong companies. Of course, Beijing leverages anonymity to pursue its most unsavory behavior. The impunity of Chinese intellectual property theft thrives on the high levels of secrecy with which Chinese firms are allowed operate. Many, including myself, have a difficult time believing that the so-called “Chinese private sector” is anything but an arm of the Communist Party when push comes to shove.
Meanwhile, Russia’s sanctioned oligarchs are scrambling to reshuffle company ownership structures. The beneficial ownership language in the Countering America’s Adversaries Through Sanctions Act led several senators to request that banks scrutinize U.S. assets owned by Russians, such as Oleg Deripaska’s mansion in Washington.
Iran also benefits from the lack of transparency in ownership to elude sanctions. In fact, the last round of Iranian sanctions, before the “nuclear deal” was signed, resulted in the National Bank of Iran purchasing a Manhattan skyscraper rather than international isolation. Since then, Iran has continued to skirt U.S. sanctions through convoluted schemes. One recent case involved a Turkish-Iranian gold trader that may have allowed Iran to launder as much as $1 billion between 2012 and 2016.
Unfortunately, U.S. adversaries are not deterred by sanctions because sanctions are difficult to enforce and easier to evade. Having a better accounting of who owns what in the United States will only become more imperative as Britain and Europe squeeze sanctioned authoritarians out of their markets and further into the United States.
Treasury Department investigators are professional and knowledgeable civil servants, but the Justice Department simply cannot bring cases to trial because the ownership structures of assets belonging to bad actors are so complex that prosecutors have a difficult time connecting the dots for juries and judges who are not financial crime experts.
If nothing is done to address this impunity, markets infiltrated by these national security threats will not remain prosperous for long. North Korean counterfeiting, Chinese influence campaigns, Russian kleptocracy, and Iranian money laundering infect and degrade trust in our financial system, our businesses, and our democratic institutions. The risk of nuclear exchanges, trade wars, and terrorist attacks that illicit finance fuels disrupts productivity, reduces efficiency, and damages bottom lines.
Ultimately, a diverse range of national security threats are tied together by the effortlessness of creating obfuscated ownership structures designed to infiltrate prosperous markets. There are currently very few safeguards against this threat. Congress needs to work with the private sector to get a beneficial ownership strategy on the books sooner rather than later.
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