The Corporate Transparency Act protects American national security

Last week, the 11th Circuit Court of Appeals heard arguments challenging the Corporate Transparency Act, which aims to end the financial secrecy that serves the interests of criminals, corrupt officials and America’s adversaries. Given the recent global rise in autocratic-leaning regimes, this is a matter of significance to our global, regional and national security.

The Corporate Transparency Act is a relatively simple law, passed in 2020 with bipartisan support, that asks businesses to name their true owners — those who exercise ultimate control of the company — upon formation. For small U.S. businesses, this is easily done. A recent survey of members of the group Small Business Majority found that 68 percent of those who filed their information found it easy to comply. But for bad actors, the law threatens to unmask the sprawling and complex anonymously-owned corporate structures that are devised to hide and launder illicit funds.

Opponents of the law have filed lawsuits to block implementation. In briefs filed with the court, a leading argument was that the law has insufficient connection to Congress’s national security powers and, therefore, Congress 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 demonstrate clearly that the district court judge got it wrong.

Consider America’s struggles enforcing sanctions against Russia and Russian nationals after the invasion of Ukraine. Anonymously-owned companies allowed Oleg Deripaska, a Putin ally and U.S.-sanctioned oligarch, to hide and benefit from approximately $1.5 billion in sanctioned assets. Russian parliamentarian Suleiman Kerimov used a complex web of shell companies to move $700 million around the world to evade sanctions.

Anonymous corporate ownership has afforded the Iranian government the ability to evade sanctions, partner with drug cartels and support terrorist networks that further destabilize an already volatile 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 ownership information, the U.S. has been identified as the leading registration destination for these secret entities. This is why so many American national security experts from across the political spectrum have voiced support for corporate transparency.

In a letter to Congress written during the lead-up to the law’s passage, more than 100 former military and civilian national security experts said that, “Adversarial authoritarian regimes have become adept at exploiting financial secrecy to spread malign economic influence globally and undermine American leadership.” Gen. David Petraeus warned in 2019 that the U.S. should clamp down on 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...and a threat to national sovereignty.” An amicus brief filed by the Foundation for the Defense of Democracies, among others, detailed the dangerous national security implications of striking the law based on a limited understanding of global threats.

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

As someone who has spent more than a decade researching, investigating, speaking and writing extensively on issues of financial secrecy, I can state that the national security implications are significant, direct and frightening to contemplate, especially at a time when longstanding global and regional alliances are being questioned.

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

Furthermore, there is the issue of defending basic honesty in our capitalist system. The Corporate Transparency Act is not only essential for our national security, but also to protecting the legitimacy of our fundamental economic system. We do not want American capitalism to be a safe harbor for cheating and criminality.

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