Who’s behind that shell company? We may never know

0:01NPR.

0:11In the late 1970s, a gleaming skyscraper was built on Fifth Avenue, just a couple blocks from Rockefeller Center. It was a lot like all the other skyscrapers, kind of tall and boxy, a lot of windows. Until. Until in 1989, the nonprofit that owned the building secretly transferred ownership to the Iranian government through a series of shell companies. Stop and think about that for a minute. The easiest place and safest place in the world for Iran to evade our sanctions is to buy property on Fifth Avenue. I don't know what more you need to know about how easy it is to laundering the United States.

0:53Now, we have a fairly new law that could have prevented this. It's called the Corporate Transparency Act, and it makes it mandatory for most small businesses formed in the U.S. to submit information on their owners. It had bipartisan support and passed under the first Trump administration. It took effect in 2024. But just a year later, Trump's second administration basically put it on ice. And now Republicans are trying to repeal most of it. This is The Indicator from Planet Money. I'm Waylon Wong, here with friend of the show, Sally Hersheps. It is good to have you back, Sally. Hello, hello. Today on the show, the Corporate Transparency Act.

1:34What is it? How is it supposed to work? And what happens if the law is repealed? This message comes from the International Rescue Committee. Right now, in places like Gaza, Sudan, and Ukraine, conflict and disaster have forced millions of families into temporary shelters without basic supplies and in urgent need of aid. With your help, the International Rescue Committee is on the ground in more than 40 countries, delivering food, clean water, shelter, and medical care where it's needed most. Donate today by visiting rescue.org slash rebuild. This message comes from Dell. Dell PCs with Intel inside are built for the moments that matter.

2:16Like a big project that can't be interrupted by an update. With long-lasting battery life, you can stay focused on what matters. Built for you. Dell.com slash Dell PCs. This message comes from LinkedIn. Owning a small business comes with a lot of challenges and means juggling multiple things at once. It's even harder to do it efficiently. But with LinkedIn, you get all the tools you need to grow in one place. With LinkedIn, simplify your sales, marketing, and hiring so that you can actually run your small business. Learn more at linkedin.com slash indicator show. So to create a new company, you're often asked for less information than you need to get a library card.

2:58Gary Kalman is one of the founders of the Fact Coalition. That's an international organization that fights illicit finance. Most people don't realize that you can form a company in the United States without naming who it is. You can hire an agent, they can go to a lawyer, they can set up the company, the lawyer can name themselves as a contact. And if that company is involved in nefarious activity, law enforcement has no idea who's behind it. Gary says take this one time back in 2009 when the U.S. was in Afghanistan. The Department of Defense had contracted with a U.S.-based trucking company. It turns out that that company had strong ties to the Taliban.

3:36What? Wait a second. You are right to go, wait, wait, right? This is insane. We were literally paying people who were shooting at our troops. We were probably paying for those bullets and guns. So wait, were they really providing the service? Was it like an operational company? Yeah. So we were buying clothes or food or whatever it was from this company. And so wait, why would the Taliban want to do this? Because it was a really good contract and it was millions of dollars. Gary says groups like the Taliban need to make money to fund their operations and they can't just operate openly. So hiding behind shell companies is an easy fix.

4:19Now, we want to be clear that shell companies have legitimate uses, like holding assets or for mergers or acquisitions. But the Corporate Transparency Act was intended for when those companies are used for illegal purposes. The law requires business owners to share four pieces of information with the federal government. Name, address, date of birth, and a copy of a government ID. But one Sunday night in March of last year, Trump's Treasury tweeted out an announcement. It wasn't going to enforce the law until new rules were established to target foreign-owned companies only. Jodi Vittori is a professor at Georgetown.

4:56She's also a retired Air Force lieutenant colonel and was assigned to NATO's only counter-corruption task force. She says criminals can't just carry around suitcases of cash, so shell companies can come in handy. Somebody took a bribe and you want to go buy a property or something, you don't really want to show up with a suitcase of cash. And when somebody asks you how you got the cash, you're like, oh, I took a bribe from, you know, like this oil company. You know, that's kind of awkward. You know, oh, I work for Putin. You know, whatever. You don't want to do that. So instead, you say have an anonymous company buy your real estate for you, purchase the property or the car or whatever for you.

5:33Jody says some economists did a study. They sent emails out to services that offer to form shell companies around the world. The one place where it's easiest to open a company, even when you look like you were terrorism finance, was the United States. Except Kenya, which came in first place. So it's Kenya in the U.S. And we won. We won. We won. Number one. Well, number two, actually. But this is not a prize we want. No, no. It's hard to estimate how much money flows through anonymous shell companies. But according to a report from the International Monetary Fund, $12 trillion around the world is held in, quote, empty corporate shells.

6:09They're used for tax engineering, avoidance, and even tax evasion. Often these companies don't even have a physical presence and few or no employees. Still, there are serious concerns about the Corporate Transparency Act, like turning over personal data to the federal government. The National Small Business Association says the law is burdensome and unconstitutional. Todd McCracken is president and CEO. He says their 65 ,000-plus members are being affected. So we feel like we're caught up in this activity that has nothing to do with us, but being forced to bear the brunt of data collection, data reporting, worries about penalties and fines.

6:54According to Todd's association, it will cost small businesses$263 billion to comply with the law. That's just for the first year. They got that number by estimating the cost if every small business in America spent$8 ,000 to fill out the form. That includes their time and costs like data protection software in case the federal government loses businesses' data. The National Small Business Association is so upset it's filed a lawsuit and even petitioning the Supreme Court to take the case. I thought of all of the things that must be on small companies' minds right now. Health insurance, the rising price of gas, wages are going up.

7:37We have inflation. And it just really struck me that this was a major agenda item for the organization. It is. Well, it's something that we've heard from our members. I mean, it's a big concern of theirs going forward. And it's also one that we feel like we can make a difference on. Todd says there's confusion over who has to submit data. The law says all beneficial owners are required to. That's anyone with, quote, substantial control over a company or anyone who owns or controls at least 25 percent of a company. He says in a small business, that could be almost any employee. And if someone gets it wrong, they could even end up in prison.

8:19But Jody and Gary, our financial crime experts, say this isn't confusing and that like a lot of federal laws, only someone who willfully breaks it would get in trouble. Truly small businesses don't have a problem. And by the way, over 80 percent of small businesses in America are non-employer firms. There's one person. They don't have any employees. No one's confused about who owns them. Confusion aside, there's another issue. Will illegitimate companies even fill in the paperwork properly? We asked Jodi about this. Well, hold on a second. If I'm a criminal, it seems very unlikely that I would fill in my name like Sally the criminal in this registry.

8:59Wouldn't I just like pay off someone to register for me? Absolutely. So I still have the problem of people lying on forms that doesn't people lie on forms all the time. That doesn't disappear just because it's about anonymous shell companies. She says the UK has a law similar to the Corporate Transparency Act on the books and a solution emerged. One of the things that the United Kingdom found when they made their databases public is that civil society groups and journalists became very good at actually becoming sort of de facto checkers for them. You know, people found that there was a ton of what have been nicknamed boss babies, a whole bunch of one-year-olds.

9:34But it gives you a starting point. You can see that in theory there's a one-year-old in charge. And maybe they shouldn't be getting a DOD contract, just saying. I would give a baby a DOD contract, just saying. You're a softie. Two bills are currently moving through Congress. One was proposed in the Senate and one in the House. But both would do pretty much the same thing, permanently exempt Americans from the law. Jodi is really concerned. She says the U.S. is already basically the easiest place in the world to launder money. And this will be, quote, like a giant White House ballroom sized welcome mat for criminals.

10:12Ready your Shell Company names, Waylon. Mine's going to be Boss Baby LLC. It's taken. This episode was produced by Julia Ritchie and engineered by Sina Lafredo. It was fact-checked by Sierra Juarez. Kicking Cannon is our editor, and The Indicator is a production of NPR. This message comes from Capital Group. In a world full of noise, long-term thinking stands out. On the Capital Ideas podcast, Capital Group leaders explore the decisions that matter most in investing, leadership, and life. It's a rare look inside a firm that's been helping people pursue their financial goals for more than 90 years.

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