Criminals form shell companies in the U.S. because states allow them to remain anonymous, Manhattan District Attorney Cy Vance testified before a House task force in Washington, D.C., Wednesday.
“On a near-daily basis we encounter a company or network of companies involved in suspicious activity, but we are unable to glean who is actually controlling and benefiting from those entities, and from their illicit activity,” Mr. Vance said. “In other words, we can’t identify the criminal.”
He continued, “This is not because the entities are incorporated in an offshore tax haven like the Cayman Islands. That country actually collects beneficial ownership information. Often, that entity is incorporated in the United States … precisely because we don’t. In this important way, a prosecutor sitting in the Cayman Islands is better positioned to root out terrorism finance in her own markets than I am in ours.”
Citing one recent example, Mr. Vance described a “pump-and-dump” scheme in which stock promoters and company insiders merged private companies into existing public shell companies, concealing their control of those companies by using nominees. The mastermind’s name did not appear in the incorporation documents or as a shareholder. “As in so many of our cases, disguised beneficial ownership is precisely what enabled the scheme,” the district attorney testified.
