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Defense Bill Targets Wallets of Rogue States, Terrorists

Illicit finance measure would close loophole exploited by China, Iran, cartels, and terrorists

U.S. Capitol
• December 10, 2020 3:20 pm

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Congress is weighing new disclosure laws to close a financial loophole that has been exploited by the United States' enemies to fund terrorist and trafficking operations.

The National Defense Authorization Act before the Senate includes a measure that would require shell companies to identify owners and store their names in a private database. Previously, rogue states and terrorists used lax disclosure requirements to circumvent U.S. sanctions, allowing Chinese, Russian, and terror-related entities to conduct transactions within the United States and with American dollars.

The U.S. financial system is regularly ranked among the largest tax havens in the world, allowing terrorists and regimes to bankroll extensive operations at the expense of American consumers. Adversaries such as Iran, China, Russia, Hezbollah, and trafficking organizations regularly use this to their advantage to move billions of dollars in U.S. markets. Scott Greytak, advocacy director of the nonprofit Transparency International, said that new registration laws would strike a direct blow against illicit finance.

"A lot of that money that is connected to and funding authoritarian regimes is parked in the United States," Greytak told the Washington Free Beacon. "This is something that hits every part of the economy, every part of American life."

As early as 2011, federal authorities discovered that Hezbollah employed used-car sales as a front to launder money for drug trafficking operations and terror financing. Chinese drug traffickers pumped the lethal synthetic opioid fentanyl into the United States through shell companies, leading to millions of dollars in profit and the deaths of scores of Americans by drug overdose.

Non-state actors are not the only groups striving to game the American system, said Nate Sibley, a research fellow for the Hudson Institute's Kleptocracy Initiative.

"We've come to realize the extent to which it's not just terrorists using these financial networks," Sibley told the Free Beacon. "It's rogue regimes, it's kleptocrats, it's all sorts of people."  

In 2017, federal authorities discovered that a Fifth Avenue skyscraper in New York City had effectively been in the control of the Iranian government since 1989. Authoritarian regimes such as Venezuela and Russia also use similar means to dodge American sanctions that would otherwise hinder their access to the U.S. dollar.

The legislation—which was a 12-year effort—encompasses all the illicit uses of the American financial network, and has been included in the National Defense Authorization Act. Experts say the bill will increase the effectiveness of American sanctions by limiting opportunities for countries and non-state actors to skirt them.

It also entrenches the overlooked foundations of American international power, Sibley said. Washington acts as "the guardian of the global reserve economy," he said. "Everybody uses the U.S. dollar, that's why sanctions work." 

Tyler Stapleton, director of congressional relations for the Foundation for Defense of Democracies Action arm, said the bill's contributions were historic.

"The U.S. Congress is poised to enact the most significant [anti-money laundering and counterterrorism] law in recent years," Stapleton said. "This years-long effort to update U.S. law to combat abuse of the U.S. financial system by malign actors appears to be finally coming to fruition."  

The bill has attracted bipartisan support, as well as the backing of law enforcement. Fraternal Order of Police national president Patrick Yoes told the Free Beacon the bill makes Americans safer.

"All too often, investigations hit a dead end when law enforcement encounters a company with hidden ownership," Yoes said. "When we can expose the link between shell companies and drug trafficking, corruption, organized crime, and terrorist financing, law enforcement will be able to bring these criminals to justice and ensure that our citizens and our nation are safer."

President Trump has publicly weighed vetoing the National Defense Authorization Act, but the House passed the bill by a 335-78 vote Tuesday—enough to overcome any veto. The Senate is expected to vote on the bill later in the month.