FOREIGN POLICY
Despite the impression that money laundering mainly occurs in small, landlocked European states or islands covered in palm trees, in reality, the U.S. political and economic system is remarkably open for the practice. U.S. Treasury Secretary Janet Yellen said in December 2021 that “the best place to hide and launder ill-gotten gains is actually the United States,” and these words have been repeated by her and other Treasury Department officials in various forms ever since.
Conflict finance, drug trafficking, terrorism, kleptocracy, sanctions busting, and a host of other global ills are facilitated by money laundering in the United States. But despite former President Donald Trump’s pronounced “tough-on-crime” approach, other parts of the Republican Party platform, the conservative Heritage Foundation think tank’s “Project 2025” strategy document, and several of Trump’s so-called crypto bro backers have advocated disassembling crucial aspects of U.S. institutions aimed at anti-money laundering and countering terrorism finance (AML-CTF).
This would open the floodgates for even more dirty money and its associated crime to enter into the United States. Should these efforts succeed, the results for the nation and the international system would be disastrous.
Global criminal networks cannot survive for long without money laundering. Money laundering is simply the act of making dirty money appear clean—or at least, not so dirty that no one will deal with it.
Just as legal businesses require the easy flow of finance to operate and profit, so too do organized crime groups, which makes money laundering a vital component to their operations. Criminals need to hide their identities so that they can use and enjoy their ill-gotten gains without attracting attention. Overseas criminal suppliers and other enablers must be paid—often in local currencies—thereby requiring adroit cross-border shadow banking. And even great-power politics comes into play, with Chinese networks now considered the primary money launderers for a variety of crime cartels, including for illicit narcotics.
Money laundering is also important for violent acts of extremism. For example, before Hamas’s Oct. 7, 2023, attacks in Israel, it brought in more than $1 billion per year. While the largest portions came from local sources, such as import taxes, and via Iran and Qatar, Israeli officials say that about $500 million came as money laundered from Hamas’s investments abroad, including in construction and mining. Meanwhile, Lebanese militant group Hezbollah has one of the most long-standing and extensive global money laundering networks in the history of terrorism, and major U.S. law enforcement operations are regularly undertaken across multiple continents to try to tamp down the group’s ability to move and use funds.
Much of the United States’ transformation into one of the world’s key offshore jurisdictions rests upon the ease with which anyone around the world could set up an anonymous shell company in the country. Because of the structure of the nation’s corporate formation industry, in which states, rather than the federal government, oversee the creation of companies—including shell companies—states such as Delaware, Nevada, and Wyoming have competed with one another to offer the most opaque tools.
This competition transformed the United States’ corporate formation sector into an effective black box, making it nearly impossible to trace the ultimate source of the funds involved and making U.S. shell companies the perfect tools for oligarchs, kleptocrats, narco-traffickers, and others looking to hide their wealth.
But it wasn’t just the shell companies that accelerated the U.S. transformation into an offshore haven. Decadeslong loopholes have allowed the U.S. real estate sector to provide anonymous purchases to anyone around the world, turning the industry into a massive sponge for illicit wealth. Similar loopholes, likewise, transformed the country’s multitrillion-dollar private investment sector—private equity, hedge funds, venture capital, and more—into dirty money laundromats targeted by everyone from Persian Gulf dictatorships to Russian oligarchs. All the while, U.S. lawyers escaped any anti-money laundering requirements whatsoever.
Thanks to the rampant secrecy provisions across these multiple sectors, we still have relatively little insight into the total scope of these networks. But the little that we do know paints a damning, devastating picture. From Venezuelan kleptocrats to Iranian officials, from post-Soviet oligarchs to African despots, a variety of bad actors have turned to the United States to help hide their wealth.
In the process, these regimes have continued looting their populaces, destabilizing countries and regions around the world, strengthening their own grip on power, and—in the case of places such as Russia and Iran—using their ill-gotten gains to demolish democratic opposition and directly threaten U.S. national security.
These cases illustrate the overwhelming need for effective anti-money laundering and counter-kleptocracy policies, not only to stanch the flow of illicit wealth, but also to shore up U.S. national security along the way.
Official Trump campaign policy statements seem to recognize the importance of the United States’ anti-money-laundering institutions to national security. For instance, Trump’s Agenda47 policy manifesto promises to “cut off the cartels’ access to the global financial system” and “get full cooperation of neighboring governments to dismantle the cartels, or else fully expose the bribes and corruption that protect these criminal networks.”
Yet some of Trump’s backers are nonetheless aggressively advocating to undermine these efforts. Most notable are the efforts to reinstate the ability to form anonymous shell companies. Until this year, it was completely legal to form anonymous shell companies in the United States; the Corporate Transparency Act (CTA) closed this loophole.
The CTA was passed with overwhelming bipartisan support as part of the National Defense Authorization Act (NDAA) on Jan. 1, 2021, albeit requiring Congress to override Trump’s veto of the overall NDAA. Its passage had been a priority for law enforcement groups (such as the Fraternal Order of Police) and good governance advocates for decades. With this single piece of legislation, Washington effectively outlawed the key tool that money launderers had used in the United States to hide their wealth and cycle it into the nation’s economy.
A section of the Project 2025 document titled “Anti-Money Laundering and Beneficial Ownership Reporting Reform” goes into significant detail on plans for killing the CTA and reassessing the nation’s money laundering institutions writ large. The Heritage Foundation had been criticizing the CTA long before it had even passed, and now that there is a possibility of a Trump second term, it is again seeking to have this landmark law repealed.
In parallel, anti-CTA groups—such as National Small Business United (NSBU) and the Center for Individual Rights—have been filing various lawsuits, first in Alabama and then a series of copycat ones in Texas, Michigan, Maine, and Ohio against the Treasury Department. These backers hope to move these cases through the appeals court process and then to the Supreme Court, where they presumably anticipate a favorable ruling that would the CTA unconstitutional throughout the United States.
And while undermining the CTA gets the most discussion, it is far from the only anti-money laundering institution that these backers seek to undermine. For instance, on behalf of Trump’s backers in the cryptocurrency industry, the 2024 Republican platform promises to “end Democrats’ unlawful and unAmerican Crypto crackdown” and states that “we will defend the right to mine Bitcoin, and ensure every American has the right to self-custody of their Digital Assets, and transact free from Government Surveillance and Control.” Cryptocurrency is already used for organized criminal activity such as pig butchering scandals and human trafficking networks, as well as by militant organizations such as Hamas.
Project 2025 also promises to undermine other aspects of the country’s AML-CTF institutions, including ending mandatory disclosures on conflict minerals and natural resource extraction, apparently referring to requirements legislated in the Dodd-Frank Act of 2010.
These ostensibly pro-crime and pro-terrorism finance policies could be an inadvertent side effect of old-fashioned political patronage. One area where Trump has garnered support is from some extraordinarily wealthy Americans who seek to lower their tax burdens. For those engaged in tax avoidance (which is legal) or tax evasion (which is not), anonymous shell companies have long been a means to hide assets from the Internal Revenue Service (IRS) because they make it more difficult to match money to its owner.
But one cannot ignore the involvement of Trump’s businesses in a variety of questionable activities, which might also influence how the Trump campaign sees AML-CTF. For instance, in 2018, BuzzFeed found that 1,300 condominiums—more than one-fifth—of the condos purchased in Trump’s buildings had been sold in secretive, all-cash transactions; all-cash transactions allowed purchasers to avoid identity and other checks by mortgage companies. Half of those secretive purchases were further shielded by being purchased by anonymous shell companies, known as limited-liability companies.
Additionally, Vanity Fair reporter Craig Unger noted in the Washington Post in 2019 that Trump Tower was one of the only major buildings in New York City that allowed purchases through anonymous shell companies in the 1980s. Trump himself allegedly used an anonymous shell company called 806 Acquisitions LLC to acquire the deed for a Beverly Hills mansion under highly unusual circumstances; he reportedly sold it a year later to an Indonesian billionaire in a cash transaction.
Then there are Trump’s links to cryptocurrency. The former president has switched from calling bitcoin a “scam” to throwing his full support behind cryptocurrency, as evidenced in the current Republican platform. Moreover, since August, he and his sons have been hawking their own cryptocurrency called World Liberty Financial, though the details of this cryptocurrency and even its launch date are lacking.
If the United States is already the No. 1 place to launder illicit funds, then what happens if money laundering become even easier? Given the nation’s vital role in the international system, both the domestic and global results would be unprecedented in at least three ways.
First, assuming that the Republican Party’s platform promise of no government surveillance or control over cryptocurrency became the law of the land, the United States would essentially be putting out a welcome sign saying “bring your criminal proceeds via cryptocurrency here” while leaving law enforcement with few tools to even hope to protect the American people.
As terrorism finance scholar Jessica Davis recently noted, cryptocurrency is the main way that terrorists move money. Now all sorts of other criminals would have a free pass to join them.
Second, given the role that anonymous shell companies have played in making the United States an important money laundering jurisdiction, returning to the bad old ways before the CTA would not only reopen this money laundering path—an especially scary scenario if combined with the cryptocurrency issues noted above—but it would also undermine the growing international norms of beneficial ownership transparency.
Even with the CTA, the United States will still not meet the highest international standards because 34 countries have public beneficial ownership registries, meaning that anyone can look up who owns a company with an easy online search.
But if the center of the world’s financial system undermines global AML-CTF norms, then why should any other country keep their own stricter rules? The result would be a global money laundering race to the bottom.
Third, given that tax evasion and tax avoidance mechanisms largely run in parallel with money laundering ones, there would be a further erosion of the U.S. tax base, decreasing funding for everything from schools and roads to law enforcement and the military. How can the United States hope to challenge China or any other threat without a functioning tax base to fund its government?
Few countries have ever opened their systems to money laundering and terrorism financing in the manner that the Trump campaign and its backers have proposed. And no money laundering pirate entrepôt has ever been a global superpower and the keeper of the world’s reserve currency.
The results would be both dire and unprecedented to the United States domestically and the international system as a whole.
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