On Friday, the Senate joined the House of Representatives by passing the 2021 National Defense Authorization Act with a veto proof majority. The act will strengthen the military’s ability to deal with rising security challenges from China and Russia. But it will also challenge those nations in another way.
That’s because this NDAA will introduce a federal beneficial ownership register to all U.S. business filings. It will have very simple compliance requirements, such as the listing of a name and address. It is neither burdensome nor requiring of annual updates. But its sting will quickly be felt by foreign adversaries.
The register will impose criminal penalties on those who seek to hide illicit wealth behind a veil of shell companies and deniable ownership. The Panama Papers suggested that Chinese Communist interests operate at least 10,000 such companies, but these shell companies are also operated by Russian oligarchs, Kim Jong Un, the mafia, and others. The register will force filers to come clean or face prosecution. The register will thus serve both as a deterrent and as a simpler means of bringing financial-related criminal charges. That latter point matters because financial investigations are often time-consuming and resource-intensive. Put simply, the register will allow for a figurative and literal improvement in law enforcement’s bang for its buck.
The Hudson Institute’s Nate Sibley has done excellent work outlining the scale of the challenge here. In a December 2019 report, Sibley noted that a U.S. government study of 1,406 high-security U.S. federal leases “could not identify the owners in about one-third of cases because many of them were shell companies. In cases where the GAO did identify the owners, nine out of fourteen government agencies working on sensitive national security issues were unaware that the buildings in which they were housed were ultimately owned by companies in China and elsewhere.”
A key success of the Trump administration has been its dramatic and diverse increase of pressure on the Chinese Communist Party. This act will advance that success in a new way.
