The most sweeping overhaul of financial crime safeguards in decades is poised to be attached to must-pass defense legislation in the coming weeks — a product of behind-the-scenes negotiations between lawmakers and Trump administration officials who are usually at odds.
The legislation, hammered out by progressive Democrats, conservative Republicans and Treasury Secretary Steven Mnuchin, would require millions of business entities to reveal their owners to the federal government in an attempt to deter the use of anonymous shell companies by criminals evading anti-money laundering rules.
Congressional aides confirmed that the group has reached an agreement, teeing up the legislation for inclusion in the annual National Defense Authorization Act, one of the last major bills lawmakers are expected to pass this year.
“It is certainly the most significant anti-money laundering reform in 20 years,” said Clark Gascoigne, senior policy adviser for the Financial Accountability and Corporate Transparency Coalition, which led lobbying efforts on the bill. “And probably the most significant anti-corruption reform as well.”
Success would cap a long struggle — starting with a 2008 bill co-sponsored by then-Sen. Barack Obama — to rein in the use of shell companies in the U.S., some of which have allowed drug traffickers, terrorists and foreign adversaries to operate freely. Evidence of abuse has mounted over the years, including the spectacular 2016 leak of the Panama Papers that documented how the rich and powerful — world leaders, celebrities, business titans — used the anonymous entities to hide their wealth.
The deal, which was negotiated by a group including House Financial Services Chairwoman Maxine Waters (D-Calif.) and Senate Banking Chairman Mike Crapo (R-Idaho), follows years of lobbying by transparency advocates who were able to convince big banks and other business groups to join the cause.
Advocates were bolstered by increasingly vocal law enforcement groups and national security experts seeking to thwart the companies. The push chipped away at resistance from business groups who complained that the new requirement would be a regulatory burden.
The effort is now facing one more big hurdle. While key lawmakers have a deal in place, the broader defense bill is still being finalized by members of the House and Senate in a conference committee. That has left an opening for the remaining opponents of the disclosure requirements, primarily the small business-focused National Federation of Independent Business, which argues that it’s a paperwork burden. The group is continuing to fight the legislation though congressional aides said it’s expected to include several exemptions designed to spare legitimate businesses from the ownership reporting rules.
“I’m disappointed in the transparency of this process,” said Kevin Kuhlman, director of legislative affairs at the NFIB. “Now we’ll focus on the conferees and leadership and just say this has very little to do with traditional defense authorization and does not belong in a defense bill.”
The first move to require corporations to disclose their true owners came from a bill sponsored a dozen years ago by then-Sens. Carl Levin (D-Mich.) and Norm Coleman (R-Minn.), along with Obama, an Illinois Democrat. It followed a series of government investigations that found states were inadvertently helping give cover to criminals by allowing individuals to set up corporate entities with no meaningful oversight of who was behind them. The findings were a wake-up call.
“It doesn’t make a lot of sense for countries around the world to spend billions of dollars to combat trillions of dollars of illicit finance and on the other hand weaponize illicit actors by being serial incorporators of anonymous entities,” said Chip Poncy, who focused on financial crime as a Treasury Department official from 2002 to 2013. “It’s sort of masochistic.”
The legislation stayed alive thanks in large part to Rep. Carolyn Maloney (D-N.Y.), a member of the House Financial Services Committee who continued to introduce similar bills for years.
The continuing trickle of damning leaks and stories over the years “were enormously helpful because it managed to recruit a number of the constituency groups,” said Gary Kalman, who leads the U.S. office of Transparency International and advocated for the legislation for several years.
Around 2016, the effort got a major boost when big banks began to put their lobbying muscle behind the ownership disclosure rules and a broader revamp of anti-money laundering rules. Banks are obligated to police their customers’ accounts for illegal activity and have a huge stake in whether they’re used by criminals to access the financial system. At the time, banks were also facing the prospect of having to comply with separate customer due diligence rules from the Treasury Department.
Kalman takes credit for recruiting the banks even though “everybody else thought I was crazy to even ask.”
“We put together a unique coalition of us, on behalf of the banks and particularly large banks that spend the most money on this and the most time,” said Greg Baer, the president and CEO of the Bank Policy Institute, a bank lobbying group that Kalman brought into the fold in 2016. “But then also reputable people who clearly didn’t have banks’ interests at heart.”
Industry support continued to grow, helping to make the case to Republicans who controlled the House and the Senate at the beginning of the Trump administration. The U.S. Chamber of Commerce, which first fought the legislation, dropped its opposition and later emerged as a supporter. Law enforcement groups became more vocal, and it began to be seen as a more pressing national security issue amid concerns about China and Russia using anonymous corporations to evade detection by the U.S.
The work accelerated in 2018 when Democrats won back the House and were able to pass Maloney’s bill for the first time. In the Senate, Sen. Mark Warner (D-Va.) took the lead on a similar proposal with members of the Banking Committee.
Absent from most of the public discussion was any mention of President Donald Trump, a potential political landmine that Democrats leading the effort tried to avoid even as they sought his banking records to find financial misdeeds.
Once Warner’s bill was done and had significant bipartisan support, the Banking Committee’s leaders — Crapo and Sen. Sherrod Brown (D-Ohio) — worked out their own deal.
The House and Senate approaches were similar. They would require business entities to report ownership information to the Treasury Department, which could then share the data with law enforcement and banks trying to root out financial criminals. The proposals also include a revamp of other anti-money laundering rules and procedures that have been unchanged for years.
Eyes then turned to the defense bill, which would be one of the last pieces of must-pass legislation moving in Congress. House Democrats attached their anti-money laundering proposal to the defense bill in August.
Since then, staff for the House and Senate authors of the bills and the respective committee leaders engaged in what proved to be months of contentious negotiations.
While Waters, Crapo and Brown were supportive of the new disclosure rules, Rep. Patrick McHenry (R-N.C.), the top Republican on the House Financial Services Committee, was skeptical when it came to imposing new reporting requirements on businesses and how their data would be protected. He pushed for several changes, according to sources familiar with the talks.
McHenry’s support was critical to getting the bill done. But, as one aide familiar with the negotiations said, “does McHenry really want to get yes” was an open question to others involved.
It also sometimes put McHenry at odds with the Treasury Department.
Mnuchin supported the legislation and had become personally involved in the talks. Warner, a moderate who socializes and rides bikes with the Treasury secretary, at times served as a liaison between the Hill and the administration to “backchannel” compromises, a Warner aide said.
McHenry was able to win some of the measures he sought to strengthen the bill, including a provision that would scrap and replace existing customer due diligence rules for banks that he believed would be duplicative, aides said. Some of the most contentious issues escalated to direct talks between McHenry and Maloney, aides said.
“Maloney didn’t have to work with us,” one Republican aide said. “She could have hedged her bet on the incoming administration and she didn’t.”
While lawmakers have mostly stayed mum on the outcome of the talks, Maloney in a statement said it was a “hard-fought” compromise.