Content area
Full text
ABSTRACT
Shell companies are simple creatures: they exist on paper, have no physical place of business, and allow for a litany of fraud. Often used for legal purposes, shell companies have increasingly been used to facilitate crime, hide ownership, and threaten U.S. national security. The Corporate Transparency Act (CTA) is a notable step toward illuminating obfuscated corporate ownership, but various loopholes allow creative bad actors to circumvent its requirements. While the Act will likely deter such bad actors, resourceful nation-states have the means to defeat its protections. Nevertheless, the CTA will likely resolve many of the issues involving contractors using shell companies to conceal relationships with subcontractors, circumvent origin eligibility rules, and disguise other conflicts of interest. Here, defrauding the U.S. government will be more difficult. However, foreign adversaries interested in exploiting the U.S. defense supply chain may engage in complex ownership arrangements that do not trigger reporting under the CTA. This Article prescribes several solutions to mitigate these loopholes, including (1) amending the definition of "beneficial owner" under the CTA; (2) providing additional funds to States and Indian Tribes to require reporting to FinCEN as a requirement of company registration; and (3) increasing the severity of penalties associated with the CTA.
I. INTRODUCTION
In 2016, shell companies came to the forefront of political debate when 11.5 million documents leaked from Mossack Fonseca, a Panamanian law firm.1 Detailed confidential financial information and attorney-client protected material for 214,488 offshore entities leaked to the public, exposing wealthy individuals' and public officials' efforts to hide money in anonymous offshore accounts.2 While there are many legal uses of shell companies, some shell companies used by Mossack Fonseca were used for illegal purposes, including fraud, tax evasion, and evading international sanctions.3 People named in the documents included King Salman of Saudi Arabia, three close friends of Vladimir Putin, and many other government officials and business people worldwide.4 The leak amplified discussion of international cooperation in combating illicit finance and illegal use of shell companies, which gained further momentum when the U.S. Government Accountability Office (GAO) found that shell companies were being used in the U.S. defense supply chain.5
In November 2019, the GAO released a public version of a sensitive report that described how companies use shells to create...