In order to succeed, terrorists, organized crime, drug cartels and major fraudsters must have the ability to raise, move, store and spend money. Anonymous shell companies, that shield beneficial ownership, are one of the primary tools used by bad guys to openly acquire and access nefarious funds.

These dubious dealings are not limited to Switzerland, Monaco and “offshore” tropical islands. The United States is among the most egregious offenders with its woeful lack of regulations requiring the true ownership of companies to be identified.

Russian death merchant Viktor Bout used at least a dozen shell companies incorporated in Delaware, Texas and Florida to operate an arms smuggling empire that fueled conflict around the world. Hezbollah created shell companies in North Carolina to smuggle cigarettes to finance terrorism. The Los Zetas Mexican drug cartel owned a quarter horse ranch in Oklahoma and used a shell company formed in Texas to launder money. Florida attorney Scott Rothstein used as many as 85 shell companies in his $1.2 billion dollar Ponzi scheme.

Why is the issue of beneficial ownership through shell companies so problematic in the United States? In most states, less information is required to incorporate than is needed to obtain a driver’s license or register to vote. In some states, you can form a corporation within 24 hours without any prior review by a state official. In Wyoming, four blocks from the state capital, you can obtain a mailbox that can be used as a “corporate suite” to establish your shell company, complete with faux directors and C-level executives. In Wilmington, Del., one specific address serves as headquarters for over 200,000 companies.

Those who do not believe that anonymous shell companies are a critical tool for criminals and terrorists are fooling themselves. I have dealt with money laundering, fraud and related criminal activity for 41 years, the majority of those years with the FBI. Following 9/11, I established and ran the FBI’s Terrorist Financing Operations Section. I am acutely aware of the roadblocks investigators encounter when they are trying to determine who is financing these illegal activities.

On two occasions, I testified before congressional committees and advised that shell companies were one of the primary vulnerabilities facing the financial services sector. The first was on October 3, 2001. The second was on May 18, 2012. If I were to testify today, I would again make the same statement.

It is time for Congress to act on this issue. For years, Sen. Carl Levin championed beneficial ownership legislation. He and Sens. Chuck Grassley, Dianne Feinstein and Tom Harkin just reintroduced the Incorporation Transparency and Law Enforcement Assistance Act, which would require disclosure of beneficial owners.

In order to pass this legislation, Congress and secretaries of state, who are responsible for incorporation, must work together and build consensus. It is time to demand beneficial ownership transparency and stop providing the criminals and terrorists with advantageous financial avenues to aid them in their efforts to harm innocent citizens.

Dennis M. Lormel was the first chief of the FBI's Terrorist Financing Operations Section, established after the 9/11 terrorist attacks. He retired from the FBI in 2003 following almost 28 years as a special agent and now runs an investigative consultancy, DML Associates LLC.

Baseball, football, basketball, hockey, soccer and lacrosse are team sports. Although each sport is different, the objective is the same. Win the game. There is one interesting commonality each of these sports share when two teams square off against each other on the field of play. Having the most talented team does not always mean you win. It certainly favors you. Having the best prepared team is usually more advantageous. Come crunch time, when the game is on the line, preparation could well trump talent. Read more here:

If you need consulting on AML, contact TrustedPeer Expert Dennis Lormel.

When it comes to fraud and money laundering, can you think like a bad guy? The truth is, we all can. However, many of us do not realize this fact. More importantly, most of us possess a high level of personal integrity that precludes us from considering the temptation of accepting the opportunity to commit fraud. Unfortunately, a good number of people do succumb to the lure of fraud. The frauds these unscrupulous individuals perpetrate can be extremely devastating.  This was never more evident than it has been More

This is the true and compelling real life story of a Bank Secrecy Act (BSA) and Bank Compliance Officer. Cathy Scharf had been recently hired by a small community bank. Shortly into her tenure at the bank, she realized something was seriously wrong. The compliance officer determined that the bank was processing an inordinate and unreasonable amount of transactions per month; well in excess of what a bank that size should have been handling. She learned that the bank was dealing with third party processors and subsequently found out that the third party processors were transacting on behalf of internet poker companies. The compliance officer knew this activity was illegal. She went to the bank president and other executives to attempt to exit the business relationships and file suspicious activity reports (SARs). Although the compliance officer continuously attempted to do the right thing, she was constantly rebuffed or misled.

What became apparent was that the tone at the top was not compliance friendly. Regardless of how dedicated and committed to doing the right thing a compliance professional is, if executive management does not adhere to a culture of compliance and exhibit the proper tone at the top, the compliance function is destined to fail. For approximately one year, the cultural conflict played out until state regulators closed the bank.

During that year, as the gripping story unfolded, the compliance officer experienced many emotions ranging from stress and sleeplessness, to intimidation, guilt and fear for her safety. In addition, she incurred legal expenses to retain a lawyer. Despite her distress, she continued to try to do the right thing. As things progressed, the compliance officer cooperated with law enforcement and regulatory authorities.

The Players

This saga contained various backstories involving a number of colorful characters. The law enforcement investigation began as an organized crime investigation into gambling. Organized crime led investigators to information regarding offshore payment processing in Costa Rica. Investigation led to third party processing; processing for a range of illicit activities to include gambling on internet poker. Most banks would not wittingly service internet poker companies. Third party processors relied on shell and shelf companies, nominees, and other mechanisms, to create the appearance that funds were being moved for licit and innocuous activities and not for illicit purposes.

There were organized crime figures in New York associated with the Gambino and Genovese families. There was Anurag Dikshit, a citizen of India, who owned PartyGaming, an internet gaming business. Dikshit pled guilty to internet gambling in December 2008, and agreed to forfeit $300 million. There was Daniel Tzvetkoff, an Australian, who made an estimated $82 million processing for PokerStars, Full Tilt Poker and Absolute Poker. In 2010, Tzvetkoff was accused by the poker companies of stealing about $100 million from them. He was subsequently arrested and agreed to cooperate with law enforcement regarding other payment processors, to include Chad Elie, a key player in the SunFirst Bank case. There were PokerStars, Full Tilt Poker, and Absolute Poker, along with their owners, who were taken down on what was known as poker’s Black Friday, April 15, 2011.

The focus of this case study is on third party processors working with an insider at SunFirst Bank to process transactions for PokerStars and Full Tilt Poker. Developments in the multi-faceted investigation led the FBI to SunFirst Bank. SunFirst Bank was a small community bank located in St. George, Utah.

The most important player in this aspect of the case is Cathy Scharf. Cathy was the BSA and Bank Compliance Officer at SunFirst Bank. Her commitment to her compliance responsibilities is a demonstration of “courage in compliance.”  

Continue Reading Cathy's story here:

If you need consulting on AML, contact TrustedPeer Expert Dennis Lormel.