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Federal Register / Vol. 86, No. 233 / Wednesday, December 8, 2021 / Proposed Rules other purposes, the AML Act was meant to improve transparency for national security, intelligence, and law enforcement agencies and financial institutions concerning corporate structures and insight into the flow of illicit funds through those structures and discourage the use of shell corporations as a tool to disguise and move illicit funds. 43 As part of its ongoing efforts to implement the AML
Act, FinCEN published in June 2021 the first national AML/CFT priorities, further highlighting the use of shell companies by human traffickers, smugglers, and weapons proliferators, among others, to generate revenues and transfer funds in support of illicit conduct.44
iii. National Security and Law Enforcement Implications of Legal Entities With Anonymous Beneficial Owners While many legal entities are used for legitimate purposes, they can also be misused, as highlighted above and as Congress recognized in the CTA.45
Corrupt actors and their financial facilitators, as a general matter, take advantage of the administrative ease of entity formation, the low cost, and the lack of information needed to establish such structures in the United States.
Those actors then use the resulting anonymity and perceived legitimacy afforded to legal entities, such as shell companies, to disguise and convert the proceeds of crime before introducing them into the financial system. For example, such legal entities are used to:
1 Obscure the proceeds of bribery and large-scale corruption, money laundering, narcotics offenses, terrorist or proliferation financing, and human trafficking; 2 disguise efforts to undermine the integrity of U.S.
elections and institutions; and 3
conduct other threatening and illegal activities. The ability of malign actors to hide behind opaque corporate structures, including anonymous shell and front companies, and to generate funding to finance their illicit activities continues to be a significant threat to 43 Id.,
Section 60025AB.
Anti-Money Laundering and Countering the Financing of Terrorism Priorities June 30, 2021, pp. 1112, available at https
www.fincen.gov/sites/default/files/shared/AML_
CFT%20Priorities%20June%2030%
2C%202021.pdf.
45 Malign actors seek to conceal their ownership of corporations, limited liability companies, or other similar entities in the United States to facilitate illicit activity, including money laundering, the financing of terrorism, proliferation financing, serious tax fraud, human and drug trafficking, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption.
CTA, Section 64023.

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the national security of the United States. The lack of a centralized BOI
repository accessible to law enforcement and the intelligence community not only erodes the safety and security of our nation, but also undermines the U.S.
Governments ability to address these threats to the United States.
In the United States, the deliberate misuse of legal entities, including corporations and limited liability companies, continues to significantly enable money laundering and other illicit financial activity and national security threats. Treasury noted in its 2020 Illicit Financing Strategy that misuse of legal entities to hide a criminal beneficial owner or illegal source of funds continues to be a common, if not the dominant, feature of illicit finance schemes, especially those involving money laundering, predicate offences, tax evasion, and proliferation financing . . . A Treasury study based on a statistically significant sample of adjudicated IRS cases from 20162019
found legal entities were used in a substantial proportion of the reviewed cases to perpetrate tax evasion and fraud. According to federal prosecutors and law enforcement, large-scale schemes that generate substantial proceeds for perpetrators and smaller white-collar cases alike routinely involve shell companies, either in the underlying criminal activity or subsequent laundering. 46 The Drug Enforcement Administration also recently highlighted that drug trafficking organizations DTOs use shell and front companies to commingle illicit drug proceeds with legitimate revenue of front companies, thereby enabling the DTOs to launder their drug proceeds.47
Recently, in a joint Federal Bureau of Investigation FBI and Internal Revenue ServiceCriminal Investigations IRS
CI investigation, the Department of Justice filed civil forfeiture complaints aggregating to $1.7 billion under the Kleptocracy Asset Recovery Initiative related to the 1Malaysia Development Berhad 1MDB investigation. From 2009 through 2015, more than $4.5
billion in funds belonging to 1MDB was allegedly misappropriated by high-level officials of 1MDB and their associates.
1MDB was created by the Government 46 2020 Illicit Financing Strategy, supra note 35, pp. 1314, available at https home.treasury.gov/
system/files/136/National-Strategy-to-CounterIllicit-Financev2.pdf.
47 Drug Enforcement Administration, 2020 Drug Enforcement Administration National Drug Threat Assessment DEA 2020 NDTA, pp. 8788 2020, available at https www.dea.gov/sites/default/files/
2021-02/DIR-008-212020NationalDrugThreat Assessment_WEB.pdf.

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of Malaysia to promote economic development in Malaysia through global partnerships and foreign direct investment, and the associated funds were intended to be used for improving the well-being of the Malaysian people.
However, using fraudulent documents and representations, the co-conspirators allegedly laundered the funds through a series of complex transactions and shell companies with bank accounts located in the United States and abroad. These transactions allegedly served to conceal the origin, source and ownership of the funds, and ultimately passed through U.S. financial institutions to then be used to acquire and invest in assets located in the United States and overseas. Included in the forfeiture were multiple luxury properties in New York City, Los Angeles, Beverly Hills, and London, mostly titled in the name of shell companies, as well as paintings by Van Gogh, Monet, Picasso, a yacht, several items of extravagant jewelry, and numerous other items of personal property. The investigation into the location and holders of the assets associated with the alleged 1MDB
scheme was made much more difficult by the shell companies with connections in foreign destinations.48
Shell companies also are used to evade sanctions imposed by the U.S.
Government, thereby endangering U.S.
national security. In a 2020 bipartisan report, the Senate Permanent Subcommittee on Investigations detailed, for example, how after Treasurys Office of Foreign Assets Control OFAC had sanctioned certain Russian oligarchs in connection with Russias annexation of Crimea and for supporting Russian President Vladimir Putin,49 those sanctioned oligarchs used shell companies to engage in a total of $91 million in transactions, and to purchase $18 million dollars in highvalue art in the United States.50 In a 48 FBI, Testimony of Steven M. DAntuono, Section Chief, Criminal Investigative Division, Combatting Illicit Financing by Anonymous Shell Companies May 21, 2019, available at https
www.fbi.gov/news/testimony/combating-illicitfinancing-by-anonymous-shell-companies.
49 U.S. Department of Treasury, Treasury Sanctions Russian Officials, Members of the Russian Leaderships Inner Circle, and an Entity for Involvement in the Situation in Ukraine March 20, 2014, available at https www.treasury.gov/presscenter/press-releases/Pages/jl23331.aspx.
50 United States Senate Permanent Subcommittee on Investigations, Committee on Homeland Security and Governmental Affairs, Staff Report: The Art Industry And U.S. Policies That Undermine Sanctions July 2020, pp. 7 and 144, available at https www.hsgac.senate.gov/imo/media/doc/
2020-07-29%20PSI%20Staff%20Report%20%20The%20Art%20Industry%20and %20U.S.%20Policies%20that%20Undermine%20
Sanctions.pdf.

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