Crackdown on China’s seedy shell firm

A Chinese policeman guards a giant portrait of the late Chairman Mao Zedong at Tiananmen Gate in Tiananmen Square in Beijing, China.

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When you think of anonymous shell companies, you might think of illegal activities by shady criminal groups, or tax evaders trying to hide their money, or crooked foreign officials trying to defraud the population.

But there is one other thing to keep in mind: the Chinese Communist Party (CCP).

While it hasn’t received nearly as much attention as some other topics related to the Chinese government, anonymous shell companies have proven to be a key component in the country’s recent rise.

More importantly, these shell companies preventing investigators from successfully tracking financial flows have proven to be key tools for both the CCP’s corrupt and heightened influence in the country and its expansive overseas efforts, all of which are aimed at this increasing the influence of the People’s Republic of China and eroding American power and American interests.

Take a look at Beijing’s Belt and Road Initiative (BRI), for example. While the CCP spins the initiative as mere economic expansion and global integration, further investigation reveals far more suspicious and far more corrupt deals – often with anonymous Shell companies at their core.

From Southeast Asia to Africa to Europe, the BRI has relied on anonymous Shell companies to hide payments to corrupt officials overseas and smear their palms to sign love agreements with representatives of the PRC and state-affiliated companies.

These shell companies, which prevent investigators from successfully tracking financial flows, have proven to be key tools both in the corrupt and heightened influence of the Chinese Communist Party in the country and in its expansive efforts abroad.

According to a report by the Hudson Institute’s Kleptocracy Initiative, the Belt and Road Initiative has “loaded the kleptocracy in developing countries with bribes and unprecedented embezzlement opportunities” – much of it relied on anonymous Shell companies, which are both journalists and anti-corruption activists blocked from exposing the details of crooked deals.

Not only has the BRI further undercut American efforts elsewhere, but the CCP has relied on anonymous Shell companies to prop up the rogue regime in North Korea. As recently as this year, the Justice Department charged dozens of people with laundering billions of dollars through anonymous corporations to help develop North Korea’s nuclear program.

Or look at the role anonymous Shell companies are playing in the CCP’s domestic stranglehold. Like other corrupt authoritarian powers in countries like Russia and Iran, the CCP often seems more interested in looting its people than in providing things like basic freedoms.

Most of the time, anonymous shell companies are at the center of these corrupt, oligarchic schemes. To take just one example, the Panama Papers revealed global transplant operations that were hidden behind anonymous Shell companies. Around 40,000 anonymous shells were directly linked to politically influential Chinese nationals, including Chinese President’s brother-in-law Xi Jinping.

The revelations also pulled the curtain back on a number of other CCP majors, all of whom are hiding their looted millions behind anonymous Shell companies.

Even the CCP’s biggest human rights violations rely on anonymous Shell companies. In Xinjiang, where the CCP set up the largest concentration camp system in the world since World War II and where the CCP forcibly detained millions of Uyghurs and Kazakhs for their ethnicity, Beijing has relied on anonymous shell companies to hide their funding.

A paramilitary organization set up by the CCP in Xinjiang relied on hundreds of thousands of anonymous Shell companies to cover up how Beijing is funding its massive crimes.

Easier than getting a library card

Shell anonymous companies are clearly key to the CCP’s designs. But in all of these details and the way China uses and abuses anonymous shell companies, there is an unfortunate reality.

The largest provider of anonymous shell companies is not in Beijing or other traditional offshore ports. Right here in the US, getting an anonymous shell company is often easier than getting a library card – and the Chinese government has turned over and over again for many of their anonymous needs.

Fortunately, the US is finally on the verge of eliminating this scourge. The National Defense Authorization Act of 2021, which went into effect January 1, 2021, contained our legislation – the ILLICIT CASH Act – effectively banning anonymous shell companies once and for all. The move will not only be the largest anti-corruption reform in the US in decades, it will also eliminate one of the world’s most popular tools for the criminals and corrupt.

Needless to say, there are many reasons to celebrate the passing of our laws. It will finally end one of the favorite tools used by cartels trying to hide their profits and oligarchs hiding their plundered wealth from battered populations. And it will include critical reforms of the anti-money laundering tools in our country that will bring our anti-money laundering laws into the 21st century.

It will also exemplify American unity and strength, thanks to its strong support from both parties. And perhaps most importantly, the Chinese Communist Party leaders who bribe officials overseas are building concentration camps at home and undermining American interests wherever they get a chance.

Sens. Mark R. Warner, D-VA and Mike Rounds, R-SD.

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