Experts say that the administration of President Donald Trump may be making it easier for criminals to get away with money laundering and bribery by abandoning the enforcement of laws that crack down on shell companies and corporate graft.
The Trump administration has said it will largely stop enforcing two key laws in the United States: the Corporate Transparency Act (CTA), which aimed to curb money laundering through shell companies, and the Foreign Corrupt Practices Act (FCPA), which bans bribery in international business deals.
Trump’s team has also moved to disband several specialized law enforcement units in the US Justice Department that focused on fighting corruption abroad. The administration is also reportedly considering severe cuts to the unit that tackles corruption inside the United States.
The Trump government justified the policy changes by arguing the laws impose unnecessary red tape on businesses and hurt the competitiveness of US companies. But the moves contradict Trump’s stated desire to get tough on organized crime.
The United States is a major global financial hub for organized crime, with an estimated $300 billion laundered in the country every year, according to the US Treasury Department.
What’s more, the crucial role of the United States as a global financial center and home of many powerful corporations means these changes will have a substantial impact.
“We are just rolling back the clock and falling behind best practices,” Scott Greytak, the advocacy director for Transparency International’s US office, told InSight Crime. “I think we are quickly going to come to regret doing this.”
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Making Shell Companies Great Again
Perhaps the most significant move by the Trump administration was to defang the CTA, which experts say will allow criminals to continue laundering money through US-based shell companies with little to fear from the authorities.
While it is impossible to know how much money is laundered through US shell companies, officials and independent experts consistently cite them as one of the most important ways for organized crime to wash its dirty cash.
Criminal organizations in Latin America, for instance, have set up various multimillion-dollar laundering schemes using shell companies in recent years.
US corporations are created at the state level, and most states do not require information about the actual owners. Usually, registration only requires a point of contact for legal matters.
The CTA aimed to curtail criminals’ ability to hide behind shell companies by requiring corporations operating in the United States to tell federal authorities who really owns and controls the company and its resources.
Many other major world economies have long enacted similar requirements to report so-called “beneficial ownership” information, and intergovernmental bodies like the Financial Action Task Force (FATF) and the World Bank support such measures.
But Trump’s Treasury Department announced on March 21 that it will not enforce the CTA’s beneficial ownership reporting requirements against US persons and companies.
Ian Gary, the executive director of the non-governmental Financial Accountability and Corporate Transparency (FACT) Coalition, said the move was “an unconstitutional subversion of Congress’ intent,” while the advocacy group Global Financial Integrity called it “a significant step backward in the global fight against financial crime, corruption, and illicit financial flows.”
During Trump’s first term in office, Congress passed the CTA despite his objections. Opponents of the law have argued that complying is confusing and burdensome for businesses.
The National Small Business Association, for instance, pointed out that most US companies have a single owner/employee, potentially meaning they lack in-house expertise to determine who is covered by the law and how to correctly fill out the paperwork.
But anti-laundering advocates counter that issues with the law can be addressed without completely discarding it. Narrowing the definition of a beneficial owner to cover fewer people, making the forms shorter, and doing more educational outreach to small businesses could all address some of those issues, they say.
“There are a lot of ways that they could have differently interpreted the law itself to make it easier for businesses to comply,” Greytak said.
Even before Trump’s suspension of enforcement, the CTA faced several obstacles. The Treasury Department lacked the resources to adequately examine beneficial ownership information for tens of millions of companies.
Additionally, access to the database was limited to law enforcement, security, and intelligence officials – excluding journalists, academics, and other members of the public from helping with efforts to detect wrongdoing.
Moreover, opponents of the CTA were already seeking to strike down the law with lawsuits that will likely be decided by a US Supreme Court whose majority aligns ideologically with Trump’s deregulatory bent.
While anti-laundering advocates are now mounting their own legal challenges to save the law, for the moment, the Trump administration’s rollback remains in effect.
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Cancelling Anti-Corruption Efforts
The Trump administration has also dismantled several aspects of US anti-corruption efforts, experts said.
Trump ordered the Justice Department on February 10 to pause enforcement of the FCPA for 180 days, while it comes up with new enforcement guidelines that promote “American competitiveness.” The FCPA, which became law in 1977, prohibits international bribery for the purpose of securing business advantages.
Latin America and the Caribbean typically account for a large share of FCPA enforcement actions – 44% of cases since the law was passed have involved bribes paid in the region, according to a tally by Stanford Law School and the global law firm Sullivan & Cromwell.
Enforcement often targets bribery that would not otherwise be prosecuted due to institutional weaknesses in the countries where the criminal activity occurs.
Major US and multinational companies, including the retail giant Walmart, the waste management company Stericycle, and the pharmaceutical maker Eli Lilly, have paid multimillion-dollar sums to federal authorities in recent years to resolve probes into potential violations of the law.
One of the most prominent cases in recent years led to the Brazilian construction company Odebrecht and its affiliate Braskem paying a record-setting $3.5 billion fine in the wake of a scandal that revealed the firms had systematized graft operations that corrupted officials in a dozen countries.
Experts disagree on whether the suspension of FCPA enforcement will facilitate international bribery. A survey conducted by a University of Chicago think tank showed many prominent economists expect the change to increase graft.
But law firms and advocates have noted that many other US and foreign laws still put companies at risk of prosecution if they engage in bribery.
“The idea that we would be comfortable exporting corruption around the world is preposterous,” Greytak said. “But I also don’t think that it’s going to have anywhere near the practical impact that the administration has been talking about.”
Dismantling Specialized Units
At the same time, the Trump administration has moved to disband anti-corruption units at the US Justice Department.
US Attorney General Pam Bondi issued a memo on February 5 saying the agency would cut so-called “anti-kleptocracy” teams focused on building cases against corrupt foreign officials.
During the first Trump administration and the presidency of his successor, Joe Biden, those teams worked with partners in Latin America and the Caribbean to target graft schemes in cases that led to convictions and fines for illegal activities in Honduras, Panama, and Peru.
Bondi’s memo directed the Justice Department to prioritize investigating and prosecuting “cartels and transnational criminal organizations,” though it is not clear whether that includes the type of elite corruption networks that were targeted in previous cases, which are common throughout Latin America and the Caribbean.
More recently, several major US media outlets have reported the Justice Department also plans to slash the resources of its public integrity unit, which looks into graft within the United States.
The unit has prosecuted cases involving high-ranking US officials accused of taking bribes from foreign entities, like the ongoing case alleging Democratic Rep. Henry Cuellar of Texas accepted bribes from a Mexican bank in exchange for using his sway as a member of congress to help the business.
