Illicit finance is a national security threat, and it is everywhere. Here's how Congress can act.

Illicit finance is a national security threat, and it is everywhere. Here's how Congress can act.


Exiting the Stanley Cup parade, some may have stopped to ponder purchasing a counterfeited Ovechkin shirt. Mixed among the ocean of wares for sale was a sea of intellectual property theft stemming mostly from overseas manufacturers. These fraudulent goods steadily erode trust in the US economy.

Textiles are an easy, and somewhat innocuous, example to spot. What is really disturbing is when one understands that this system of illicit trade is underpinned by anonymously held companies and trade-based money laundering schemes that reach all the way into national defense contracts, airplane parts, and prescription drugs. One cannot help but wonder whether Congress will act to reduce this national security threat.

The proliferation of counterfeit Caps gear around Washington, DC, is but one small example of a much larger problem. Via Reuters. Mandatory Credit: Geoff Burke-USA TODAY Sports

Ultimately, the best way to lose the fight against illicit finance is to not fight it at all. National security threats (and car salesmen) have a sixth sense for indecision and will use it as a wedge. Bipartisan House draft legislation on illicit finance proposed last November seemed likely to pass this year, but in the markup process it has apparently hit a snag over watered-down beneficial ownership language.

Experts from all corners of DC have testified before Congress on the costs and national security risks of allowing loopholes for adversarial governments to anonymously own property in the US. Many have written about the dangers of permitting opioid-pushing drug cartels to anonymously own transport planes in the US. Others have written about how beneficial ownership data give sanctions teeth. Throughout, most emphasize the importance of strictly maintaining rights to privacy.

But don’t take their word for it. Don’t read the letter to Congress on the issue from three dozen former military and civilian national security leaders. Don’t dare heed the warning of the Fraternal Order of Police, which has now withdrawn its support for the new draft markup. At the very least, listen to Delaware’s Secretary of State — representing the “Liberty and Independence” state, home to more businesses than people, where it is easier to incorporate a business than to get a library card — who supports the earlier, tougher draft language of the beneficial ownership provision.

The latest controversy regarding the draft bill stems from the fact that the current markup grants “18 months safe harbor” from a Treasury-issued beneficial ownership provision, known as the Customer Due Diligence rule (CDD). The CDD only applies to account holders at financial institutions. Compliance departments have been fulfilling due diligence, enhanced due diligence, know your customer (KYC), and counter-terrorism finance responsibilities since long before the Treasury’s CDD rule was announced a year ago. Private financial institutions are accustomed to such requirements, as well as forfeiting profits to maintain compliance.

Many think that the safe harbor provision, coupled with changes to currency transaction reports (CTRs) and suspicious activity reports (SARs) may actually make it even easier to launder money in the United States. What is needed is a mechanism that lightens the load on compliance departments while facilitating better communication between compliance departments and law enforcement. A beneficial ownership registry that respects privacy rights can do just that.

But how does this relate to counterfeit clothing? Illicit finance is the backbone of illicit trade. Anonymously owned legal entities are the lubricant that encourages illicit finance. Meanwhile, poorly managed trade zones in authoritarian regimes, like those in Dubai, are the grease that enables illicit trade. These issues are all connected, and legislation to address them frequently misses the mark.

With the UK hot on the trail of illicit finance (even within her overseas territories) and the European Union not far behind, bad actors are eager to continue moving their ill-gotten gains through, and store them within, Western markets. Don’t get me wrong, investment flowing into the United States is a great thing. But investments borne of opioid sales, counterfeiting, and sanctions evasion bring unwanted baggage.

Congress should join our transatlantic partners in this fight and level the playing field by passing more stringent beneficial ownership legislation. This is more about fairness and national security than any sort of altruistic transparency crusade. After all, is fairness not what the current tariff debate is about? The US, Canada, and Europe have a common enemy here — dictators, terrorists, and criminals — all aided by the legal cover of anonymous business incorporation in the United States.



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