This Week in AML

The Pandora Papers - The Gatekeepers

This week The Washington Post and the International Consortium of Investigative Journalists (ICIJ) published another segment of the Pandora Papers. This latest release focuses on registered agents and their role in representing companies In the United States. John and Elliot discuss the total lack of transparency of corporate ownership in many of states, weakness this creates in the financial crime prevention regime In the US, and ENABLERS Act which was introduced In Congress In October 2021.



The Pandora Papers - The Gatekeepers TRANSCRIPT


Elliot Berman: Hi, John, how are you today?

John Byrne: Hi, Elliot. How's everything going?

Elliot Berman: it goes to the coast, but it stopped raining here. So that's a good thing.

John Byrne: We've been having quite a bit of rain. And as we record this, hoping that opening day of baseball doesn't get shut out. Of course, in Milwaukee, it's a closed roof.

So if it's raining, whenever they have opening day, that's not going to be a problem.

Elliot Berman: Yeah. We open on the road in a non-dome stadium, but you're right. We get to play no matter what the weather. So this week, another release related to the Pandora papers came out, focusing on

the gatekeeper. It's called The Gatekeepers Who Open America to Shell Companies and Secret Owners. And, as you know, this is a joint effort by the Washington Post and the international. I always get this wrong. Sorry, international-

John Byrne: Consortium of Investigative Journalists.

Elliot Berman: Thank you. I mean, I can see it in my head, but you know, I can't get the words out. It's what happens when you get old. So, very interesting actually attacking or, focusing in on, I think that's fair. A piece of the reasonably byzantine approach to how corporations in the United States, you know, do their business is something called registered agents. So, let me take 30 seconds for those of our folks in our audience who aren't familiar with this part of the corporate universe.

Corporate law in the United States [is] almost entirely governed at the state level. So if you want to incorporate, you can't do it at the federal level. You go to the state, and you meet the requirements. And one of the things that most states require is that you appointed a registered agent. The purpose for that, I mean, the big picture purpose for that is so if somebody wants to reach out to the company and can't find the company that you have, somebody whose address, you can send something to, including things like lawsuits, if you want it to sue them. So I assume you saw the article and actually, both on the websites of the post and the ICIJ.

John Byrne: Yeah, I did. I would just say to our AML colleagues ICIJ is a worthwhile cause. They accept donations. So I get a separate email from them as well as the Washington Post is my local paper. So I did see that. As we've talked about before, the work of the investigative journalism industry has been really essential to moving legislation to shining lights on issues. And so whether it was the Panama papers, Pandora, Paradise, you know, whatever, FinCEN, although this I thought was particularly interesting because both of the name they gave the legislative vehicle that's been introduced to deal with this. The enablers act, but also that whole context of gatekeeping and enabling because, you know, FATF has spoken quite frequently about ensuring that CPAs and our profession, legal profession, and others have some responsibility to report activity. And this is certainly one which we sort of knew there were more than gaps in how this is covered, but we sort of knew this is an area where little or no, in most cases, no due diligence gets done.

Elliot Berman: Yes. And your reference to FATF is something that shows up in their assessment when they do assessments in the United States. And our overall anti-money laundering regime, they point out that weakness and there are countries, western countries, the UK is a good example where legal and accounting professionals do have obligations that are more than just take anybody who comes through the door and do anything they want you to do. Which is sort of the US approach.

John Byrne: Right. You know, and a couple of things, the article goes into historically, when Congress has looked at this, how the secretaries of state have put up their hands and just said, hey, not us. So whether it's Wyoming, Nevada, Delaware, [or] Montana, you name it. These states that make money out of incorporation have never believed that they have an obligation beyond [the] sort of minimal due diligence. So I think we can't forget that, but politically a lot tougher to do. And that's why I think the legislation is designed to focus on registered agents, which even the secretaries of state have pointed at, although, as I just said, I think there is sort of a box of both houses.

Elliot Berman: Yeah. So the enablers act that you're referring to was introduced in the house in October of 2021. It's been referred to house financial services, and they have not held hearings. I don't know if they've taken any official action.

So it is sitting there. The timing of the introductions seems to be in some way responsive to the original Pandora Paper release, which was interesting. The other thing is the article focused a lot on Wyoming. And there was a reference to the fact that there were some efforts a few years ago to introduce a piece of legislation in the Wyoming legislature to try to tighten some of this up, and it failed to win approval.

And the argument was [that] it was somehow an invasion or inappropriate in the context of free speech, which struck me as, [I'm] not a constitutional lawyer by training, but, it struck me a little bit like trying to defend, yelling [and] fire in a crowded theater. But, again, I have a somewhat different view I think of these things. The same one you do, but different from the folks in the Wyoming legislature in 2018.

John Byrne: Right. And one of our colleagues is quoted in the article. Sarah Beth Felix who's done a lot of great work in AML compliance. You know, basically saying that this is amazing.

A major gap. So I thought in the story, what she said is "if I were a criminal..." this is a quote "or ran a criminal enterprise. I would have a field day with registered agents because I just need to find another adult with a pulse." So I thought that was a good way to comment on that.

But I also would say, you know, this is relevant to today because of trying to find where the oligarchs are stashing, their funds, their real estate, their art, all of that. So it's all relevant. And I would imagine, even though the neighbor's act hasn't moved at all, house financial services is having a hearing coming up fairly soon in which there's a number of proposals.

Besides looking at how the corporate transparency act and AMLA have been implemented [and] proceed to be implemented on some of these legislative vehicles, wanting to see some push there. So I think there's going to be some additional focus, if not outright activity. And this is a prime area for that activity.

Elliot Berman: Oh yeah. I agree with that. The other thing that I found interesting in the articles were a couple of references to the possibility of requiring the registered agents to compare their clients to the SDN (Special Designated Nations) list. And I was thinking again, I don't consider myself a super in-depth expert on sanctions, but if you look at many of the sanctioned programs, it's quite clear that they apply to everybody in the United States, the ones issued by the US treasury.

And so you know, the idea that these folks could go that far, it's like you and I have to go that far before we do business with someone now. It doesn't extend to as far as the undisclosed beneficial owners of the companies that these folks represent, but it's possible. Often sanctioned programs that add people that add entities and people to the SDN list, including known LLCs, if someone's figured out who they are with. I think the short, you know, the punchline, obviously that starts at the beginning, is there's essentially no oversight. And in the states that you mentioned, Delaware, Nevada, and Wyoming, To name three of probably the five or six in the US that are really are secrecy havens, without nice beaches.

They're the worst. I mean, so if there's little oversight, they have no oversight. 

John Byrne: Right and read the story if you get a chance. It's in the Washington Post on April 5th. Also, ICIJ's website has it. What's also interesting as these registered agents have thousands of companies that they registered. Their argument is, well, there's so much, how are we supposed to do this? The Wyoming focus said the number of LLCs has soared past ten years from 4,200 to 220,000. So that tells you all you need to know.

Elliot Berman: Yes. Last little factoid. So the article focuses a lot on individuals or what I think of as small operations that are acting as registered agents. There are legitimate, large corporate service companies that do service. They act as registered agents for all kinds of legitimate businesses. I mean, you and I have an LLC. I actually have, you know, the law firm that does the legal work for my LLC. They have a subsidiary that is, in fact, a registered agent so that the annual report stuff comes somewhere that will actually get to me as opposed to if I moved and forgot to change the address of the business. So there's legitimate activity going on here. But there's a lot of, not my job and don't look at me, you know, I'm just collecting my fee and doing what the client tells me. And I don't even know who the client is.

John Byrne: Yeah. It sounds a lot like our friends in the real estate industry.

Elliot Berman: Yeah, I think that's a great parallel. There's another hole where we know there's questionable activity, and yet, so far, we haven't had the political will either at the state or federal level to fix it.

John Byrne: That's right. Real quick, a couple of things I want to highlight our webinar that is coming up April 28th; you'll be, moderating a panel on helping prevent domestic terrorism. That is at one o'clock Eastern time. And I also want to highlight besides the investigator journalists group that we just referenced. The organized crime and corruption reporting project also utilize investigative journalists, and one of their own, Kevin Hall, is going to be speaking at our AML partnership forum. I say ours, it's a separate organization that is a not-for-profit, but we're helping organize it. This first partnership forum will be in Washington, DC, from April 20th till the 22nd. Information is available, just google AMLPF, or you can get it off of our website as well. But Kevin Hall will be doing a presentation about investigative journalism in general. And I'm sure we'll be covering some of these issues specifically.

Elliot Berman: Yep. All right, John, have a great weekend, and I will talk to you next week.

John Byrne: Sounds good. Take care.

Elliot Berman: Yeah, you too. Bye. Bye.