The Corporate Transparency Act protects America’s national security

Last week, the 11th Circuit Court of Appeals heard arguments against the Corporate Transparency Act, which aims to end financial secrecy that serves the interests of criminals, corrupt officials and U.S. adversaries. Given the recent global rise of autocratically oriented regimes, this is an issue of significance for our global, regional and national security.

The Corporate Transparency Act is a relatively simple law, passed in 2020 with bipartisan support, that asks companies to name their true owners — those who exercise ultimate control over the company — upon incorporation. For small American businesses, this is easy to do. A recent survey of members of the Small Business Majority group found that 68 percent of those who submitted their information found it easy to comply. But for bad actors, the law threatens to expose the vast and complex corporate structures of anonymous companies designed to hide and launder illicit funds.

Opponents of the law have filed lawsuits to block its implementation. A leading argument in the briefs filed with the court was that the law is not sufficiently related to Congress’s national security powers and that Congress therefore has no authority to legislate in this area. In what several lawmakers and national security experts called a flawed decision, a district court judge agreed with the plaintiffs earlier this year.

Numerous reported cases and a mountain of evidence that secrecy fuels security threats clearly show that the district court judge was wrong.

Consider the American struggle to enforce sanctions against Russia and Russian nationals after the invasion of Ukraine. Anonymously owned companies allowed Oleg Deripaska, a Putin ally and US-sanctioned oligarch, to hide and profit from approximately $1.5 billion in sanctioned assets. Russian lawmaker Suleiman Kerimov used a complex web of shell companies to move $700 million around the world to avoid sanctions.

Anonymous corporate ownership has given the Iranian government the ability to evade sanctions, collaborate with drug cartels and support terrorist networks that further destabilize an already unstable region.

The use of anonymous corporate entities has become a mainstay of America’s adversaries and other anti-democratic forces. And while more than 100 countries have pledged to end the abuse of anonymous companies through the collection of proprietary information, the US has been identified as the top registration destination for these secretive entities. This is why so many U.S. national security experts from across the political spectrum have expressed support for corporate transparency.

In a letter to Congress written in the run-up to the law’s passage, more than a hundred former military and civilian national security experts said: “Anti-authoritarian regimes have become adept at exploiting financial secrecy to spread malign economic influence worldwide and undermine American leadership. .” General David Petraeus warned in 2019 that the US must curb the ability of kleptocrats to secretly move money through the rule of law world and that failure to do so “is an invitation to foreign interference… national sovereignty.” An amicus brief filed by the Foundation for the Defense of Democracies and others detailed the dangerous national security implications of enacting the law based on a limited understanding of global threats.

After heeding the warnings, the federal government formally recognized the fight against corruption as a threat to national security in 2021. That same year, the government also published a national strategy to combat corruption, emphasizing the need to implement the Corporate Transparency Act and expand the number of tools to combat financial secrecy.

As someone who has spent more than a decade researching, researching, speaking, and writing on financial secrecy topics, I can say that the national security implications are significant, immediate, and frightening to think about, especially at a time when long-standing global and regional alliances are being questioned.

The judges reviewing the appeal must listen to the united voices of those charged with protecting our national security and correct the lower court’s misguided decision.

Moreover, there is the matter of defending basic fairness in our capitalist system. The Corporate Transparency Act is essential not only to our national security, but also to protecting the legitimacy of our fundamental economic system. We do not want American capitalism to be a safe haven for deceit and crime.

Charles Davidson, MBA, is the founder of the Hudson Institute’s Kleptocracy Initiative. He was co-founder and publisher of the magazine The American Interest.