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These U.S. companies hide drug dealers, mobsters and terrorists

Posted at 9:49 PM, Dec 11, 2015

NEW YORK — As law enforcement agencies desperately try to track down terrorists and prevent future attacks, current U.S. laws are making it easy for dangerous criminals to create anonymous companies and hide funds right here in America.

From white collar fraudsters to arms dealers, bad actors often use fake businesses to mask the true nature of their activities and anonymously transfer money around the world.

Known as shell companies, these entities — which are perfectly legal — often have no real operations.

And they aren’t just in international safe havens like Panama and the Cayman Islands. Thousands are based on U.S. soil, thanks to the veil of secrecy that U.S. law gives to corporations — most notoriously in Delaware, Wyoming and Nevada. In these states, taxes are low and little information is required to form a business.

Here’s how it works:

The first stop is often to a so-called “registered agent.” These firms incorporate tens of thousands of companies a year for fees as low as a few hundred dollars.

In some cases, a corporation can be set up within minutes using little more than an email address — no proof of identification required.

These agents not only set up the businesses in the first place, but also provide them with physical addresses to claim as their own and serve as contacts for government filings. They will often even appoint directors.

While these services can prove useful to many legitimate companies — from small businesses to Fortune 500 companies — they can also be a perfect tool for criminals trying to remain in the shadows.

Because it’s so difficult to link shell companies to their owners, it’s unclear whether — or how often — terrorists like ISIS are using these businesses to aid in their operations. Federal law enforcement agencies, from the FBI and the Justice Department to the Treasury Department’s financial crimes unit, say that shell companies can be ideal vehicles for terrorist financing.

That’s because owners of shell companies can remain anonymous while still being able to open bank accounts, transfer money and enjoy the legitimacy of being incorporated in the United States.

“The beauty of shell companies is being able to hide,” said Dennis Lormel, a former FBI special agent and expert on terrorist financing. “This lack of transparency is an impediment for law enforcement and the intelligence community.”

American shell companies have been used to launder money and facilitate the illegal activities of such notorious criminals as a Russian arms dealer charged with selling weapons to terrorists (dubbed the “Merchant of Death”), and a Serbian crime boss tied to the murder of his country’s Prime Minister.

And even when the criminals behind the shell companies get caught, the registered agents who help set them up are often left untouched — and many continue to rake in money by registering fronts for potentially dangerous criminals.

Security experts and law enforcement officials say these shell companies pose a threat to national security and make it nearly impossible to find the people who are actually financing terrorism and other criminal activities. But despite repeated bills from lawmakers to eliminate this secrecy, Congress has yet to take action, leaving the United States far behind other countries when it comes to identifying criminal enterprises.

“Time and again, we find that our international partners are better situated to assist us in thwarting terrorism and financial crime,” Manhattan District Attorney Cy Vance said at a Congressional hearing in June. “We can’t assist them in taking down U.S.-incorporated terroristic enterprises, because information about the owners of entities formed in our states is beyond our reach.”

Cocaine trafficking masked as a gold mining business

Some criminals use shell companies in conjunction with actual business operations to further confuse authorities and create a false sense of legitimacy.

The family behind Peruvian drug trafficking ring Sanchez-Paredes, for example, allegedly used a complicated combination of shell companies — a few of which were located in Florida — and gold mines in Peru “to layer and disguise the family’s illegal cocaine proceeds for decades,” the U.S. Drug Enforcement Agency said in a statement at the time.

But after authorities alleged that the mines were producing more cocaine than gold — with drug shipments being transported into the mines by mules — the government seized $31 million from the operation in 2012.

Serbian mafia’s Delaware hideaways

Two of Serbia’s most notorious organized criminals have another thing in common: They both used shell companies based in Delaware to carry out their illicit activities, according to documents obtained by the Organized Crime and Corruption Reporting Project.

Luka Bojovic — previously one of Serbia’s most wanted criminals — was reportedly involved with the assassination of Serbia’s prime minister, while Darko Saric was charged by the Serbian government with trafficking more than 5,000 kilograms of cocaine.

Several of the shell companies allegedly used by these mobsters can be traced to the same registered agent: a Delaware firm named Harvard Business Services, which says on its website that it will help form more than 10,000 companies this year alone.

Harvard Business Services, which is not related to Harvard University, told CNNMoney that these men’s names were never on any paperwork filed with its firm, and that it resigned as their registered agent when it was alerted of possible criminal activity by the Department of Justice.

“We are as concerned as anyone about the fraudulent use of Delaware companies by a few of the people who obtain them,” said HBS President Richard Bell. “These few who misuse them threaten our existence and we come down hard on them whenever we are alerted to such cases.”

He believes fraudsters use Delaware because of its reputation as a home for many Fortune 500 companies, not because it’s an easy place to create anonymous businesses. “These fraudsters want to appear legitimate so they pick the premier state in the premier country to camouflage themselves,” he said.

The solution, he says, goes beyond Delaware: The Internal Revenue Service should be the agency in charge of making sure all companies provide ownership information — not individual states.

Meanwhile, the Delaware Department of State said that “the overwhelming majority of companies that incorporate in U.S. states are legitimate” and that it fully cooperates with any law enforcement investigations.

Deadly Mexican drug cartel hides behind Oklahoma horse ranch

In one of the more creative schemes, the ruthless Los Zetas drug cartel used a horse ranch and a number of shell companies to conceal millions of dollars in drug money.

Here’s how the money laundering operation worked:

Jose Trevino Morales, the brother of two Los Zetas leaders — one of whom reportedly dismembered his victims while they were still alive — owned a horse ranch in Oklahoma where he claimed to be running a prosperous business of buying and selling race horses.

But in reality, most of the deals he made had nothing to do with horses — some of which were fittingly named “Number One Cartel” and “Morning Cartel.” In order to cover up and transfer illegal drug proceeds and make the money appear to be “clean,” he and his associates would funnel it through shell companies and front men under the guise of horse sales — making sure the cartel leaders’ names were nowhere to be found.

In the end, investigators discovered that more than $22 million in drug money had been sent back to Mexico. Trevino was convicted of money laundering in 2013 and sentenced to 20 years in prison.

‘Merchant of Death’ sells weapons to terrorists

Russian arms dealer Viktor Bout, dubbed the ‘Merchant of Death’ for supporting violent conflicts (like civil wars) around the world, was convicted in 2011 on U.S. terrorist charges for conspiring to sell millions’ of dollars in weapons to a Colombian terrorist group which planned to use them to kill American troops.

Bout has become a poster child for law enforcement officials and others who have long lobbied Congress to require companies to disclose their true ownership.

“Bout was able to do business largely thanks to a sprawling network of shell companies,” said Vance, the Manhattan district attorney, noting that one of these anonymous U.S. companies was even used to provide weapons to the Taliban. “Bout maintained absolute control over these accounts, but no links to Bout could be found.”