Shell Companies: Contemplated Legislation an Encouraging Sign

By Dennis Lormel

Shell companies present a serious systemic vulnerability as a facilitation tool for fraud, money laundering and terrorist financing. I posted an article on the Counterterrorism Blog addressing the vulnerability of shell companies in April, 2007.

Senator Carl Levin, Chairman of the Senate Permanent Subcommittee on Investigations has drafted legislation intended to diminish the risk of misusing shell companies in furtherance of criminal activity, money laundering and terrorist financing. This is an extremely encouraging sign. As noted in the above referenced article, the only meaningful way to regulate shell companies would be through Congress enacting legislation.

Staff members for the Senate Banking Committee are assessing the issues concerning shell companies. As part of the process, they are meeting with subject matter experts. Senator Richard Shelby, Ranking Member of the Senate Banking Committee is considering co-sponsoring the proposed legislation with Senator Levin. Indications are that the Treasury Department and Department of Justice are in favor of the legislation.

This is an important step forward. However, it is likely the process will be very challenging. At the present time, shell companies are registered at the state level. Shell companies represent a source of revenue for states. Potential legislation could threaten this revenue stream, as well as cause states to dedicate resources to regulating shell companies. In consideration of the above factors, states would likely oppose potential legislation.

It is important that Congress resist pressure and move forward with meaningful legislation. Shell companies, which are used for illicit purposes, represent a significant threat to our economy and national security.

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