Legislature(2021 - 2022)BARNES 124
04/22/2022 09:00 AM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB404 | |
| Board of Chiropractic Examiners | |
| HB405|| HB406 | |
| HB408 | |
| HB392 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | HB 333 | TELECONFERENCED | |
| += | HB 405 | TELECONFERENCED | |
| += | HB 406 | TELECONFERENCED | |
| *+ | HB 408 | TELECONFERENCED | |
| += | HB 91 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 404 | TELECONFERENCED | |
| += | HB 392 | TELECONFERENCED | |
HB 405-ESTABLISHMENT OF TRUSTS
HB 406-MORATORIUM ON TRUSTS/PROPERTY ACQUISITION
9:32:17 AM
CO-CHAIR FIELDS announced that the next order of business would
be HOUSE BILL NO. 405, "An Act relating to the establishment of
trusts; requiring the filing of certain trust information; and
requiring compliance with a federal law." and HOUSE BILL NO.
406, "An Act relating to the validity of trusts involving
persons sanctioned by the United States Department of the
Treasury; and relating to the recording of documents conveying
land to persons sanctioned by the United States Department of
the Treasury."
CO-CHAIR FIELDS [continued] invited testimony on HB 405 [and HB
406]. He said this additional invited testimony will address
Representative Kaufman's question about identifying the problem
statement that [HB 405 and HB 406] are trying to address.
9:32:48 AM
KAISA DE BEL, Policy Analyst, Global Financial Integrity (GFI),
provided invited testimony during the hearing on HB 405 and HB
406. She said she is a policy analyst affiliated with Global
Financial Integrity (GFI), a Washington DC-based think tank
focused on providing evidence-based research and solutions to
counter ways in which criminal actors abuse the US economy to
hide their illicit profits. She paraphrased from a document in
the committee packet titled "Illicit Finance and Real Estate
Opacity in Alaska," dated 4/22/22. Ms. de Bel spoke as follows:
Sanctioned governments, kleptocrats, and drug
traffickers have long used the US real estate sector
as a vehicle to evade sanctions and hide their ill-
gotten gains. Simply put, real estate is an
attractive safe haven for illicit money because it
retains value, while also creating the opportunity for
long-term profits through rentals, property flips, and
land development. Most significantly, the US real
estate market permits the anonymous purchase of real
estate through shell companies and trusts. This makes
it easy for bad actors and criminals to hide their
identity and, in turn, protects their wealth from
asset recovery efforts as well, both in their home
jurisdiction and in countries where they are
sanctioned.
Recent investigative efforts like the Pandora Papers
are just one in a long line of reports exposing high-
profile real estate money laundering cases that span
the country. Last year, GFI published a report that
found that more than $2.3 billion was laundered
through US real estate in cases reported between 2015
and 2020. [Global Financial Integrity's] analysis of
those cases shows two very clear trends.
First, the most common money laundering technique in
the real estate sector is the use of complex legal
structures to purchase properties. The use of trusts
and companies makes it easy for criminals to hide
ownership of real estate, while at the same time being
able to flaunt in plain sight the evidence of ill-
gotten wealth. Sometimes these were companies and
trusts registered domestically, but it also often
featured companies registered abroad.
The second trend found in GFI's analysis, is that the
US real estate sector particularly attracts actors
with political ties to foreign regimes, including
foreign adversaries like North Korea, Iran, and
Venezuela. In 82 percent of the analyzed cases, the
illicit money invested in the real estate sector had
foreign origins. And in more than half of the cases,
the beneficial owner of the property was a foreign
politician or their associate who obtained their
wealth through corrupt activities. This high influx
of foreign and corrupt money poses a serious threat to
US national security and global democratic norms.
Unfortunately, the Alaskan real estate market has not
been excluded from this trend. For instance, between
2011 and 2014, an Alaskan resident helped the Iranian
government transfer $1 billion to various businesses
and individuals around the world, in violation of the
US sanctions regime. This Alaskan resident received
$10 million dollars for his role in the scheme and
laundered this money through real estate purchases in
Alaska. Through various shell companies, he held more
than 20 condominiums and homes in Anchorage and Eagle
River.
And despite these known risks across the country, real
estate transactions are subject to limited federal
oversight. The only binding federal regulation
focused on real estate risks are Geographic Targeting
Orders or GTOs. These temporary orders require title
insurance companies to report the beneficial owner of
residential real estate purchases but they only
apply in a select group of 22 counties across the
country.
This policy has several serious shortcomings and is
inadequate to address real estate money laundering and
sanctions evasion risks. First, the GTOs do not apply
in Alaska. In fact, GFI's research found that the
majority of real estate money laundering cases
involved properties located outside of the GTO
geographic scope, with Alaska proven to be one of the
bigger real estate money laundering hubs as you can
see on this map. Even if the GTOs would apply in
Alaska, it would be very easy to get around them
because title insurance is only mandatory when the
buyer takes out a loan. Kleptocrats, oligarchs, and
high net worth criminals have plenty of cash at their
disposal to acquire real estate without a loan or
title insurance, thereby evading the GTOs. And while
the Corporate Transparency Act, which was passed by
Congress last year, will address some of the opacity
in the US real estate sector, it will not help in
identifying the beneficial owner when a foreign
company or trust buys real estate, which is just as
common.
Given the loopholes in the federal regulatory system,
it is critical to seek solutions at the state level to
address these gaps. [Global Financial Integrity]
therefore supports House Bills 405 and 406 as an
important step to address the opacity in the real
estate sector in Alaska. To ensure that HB 406 brings
greater transparency without loopholes for bad actors
to exploit, GFI urges Alaska to incorporate the
following policy recommendations:
First, at a minimum, the basic goal of HB 406 should
be to create a clear picture of the beneficial
ownership of real estate in Alaska. The requirement
of identifying the beneficial owner should apply to
all legal entities buying real estate, including LLCs
[limited liability companies], trusts and other legal
entities formed and registered in the US, as well as
abroad.
Second, in addition to beneficial ownership, the
source of funds and the identification of politically
exposed persons should also be reported. These two
additional key pieces of information are critical to
spot red flags in a transaction and identify high-risk
actors.
Third, instead of putting the reporting burden on one
gatekeeper, it should be placed on multiple real
estate professionals in cascading order. This creates
a shared responsibility among real estate
professionals and prevents bad actors from evading the
requirement by bypassing a title agent.
Fourth and finally, the bill should apply to all real
estate transactions that were not financed with a loan
from US-based financial institutions, because those
are currently the only actors who are required under
federal law to conduct any type of anti-money
laundering checks in a real estate transaction in the
US. These reforms would make HB 406 more effective
while at the same time ensure it has minimal costs on
Alaskan real estate professionals.
In conclusion, Alaska has the opportunity to counter
the use real estate as an easy mechanism for bad
actors to evade sanctions, gain access to the US
dollar, and the US financial system. We encourage you
to take this opportunity.
9:40:18 AM
CO-CHAIR FIELDS encouraged Ms. de Bel to work with his staff on
crafting amendments to tighten HB 406. He inquired whether
preventing money laundering and hiding ill-gotten gains by
sanctioned individuals requires both state and federal laws or
whether it is sufficient to wait for the federal government.
MS. DE BEL replied that there isn't any important federal
legislation underway. But the federal Corporate Transparency
Act [of 2021], she specified, was a very important step in
addressing some of the issues of the past in the real estate
sector and the illicit use of legal entities such as LLCs and
trusts general. Some things remain unclear under the Corporate
Transparency Act, she advised, and those are crucial issues.
Under the Corporate Transparency Act, corporations, limited
liability companies, and other similar entities formed and
registered to do business in the US in any US state will be
required to disclose their beneficial owner to a directly housed
financial entity and that includes foreign companies but only
when they are registering in the US to do business. Because of
the qualification "to do business," she explained, it is unclear
whether the use of foreign LLCs or trusts for the purchase of,
for example, residential real estate would be covered by that
because that might not qualify as doing business. That weakness
means that if, for example, a Russian LLC or trust buys property
in Alaska, that would not qualify as doing business and would
therefore not necessarily be captured by federal legislation.
Another loophole, Ms. de Bel explained, is that the application
of the [contractual trust arrangement] (CTA) to trusts remains
unclear to this day, so it is very important that states are
proactive about addressing that loophole with state level
legislation.
9:42:19 AM
CO-CHAIR FIELDS thanked Ms. de Bel for her testimony. He said
the Pandora Papers have provided a window into how criminals
exploit trusts and launder money through real estate, yet the
full extent to which criminals have exploited trusts within
Alaska is unknown because the view of the Pandora Papers is
limited. He inquired about what can be said to policymakers in
states where a limited degree of leaks has suggested that the
scope of this problem could be significant, but the full scope
cannot be understood until there are greater transparency laws.
MS. DE BEL remarked that that is an important question to look
at. She said GFI's research was based on real estate money
laundering cases that are in the public domain, which were cases
reported by journalists such as the Pandora Papers or law
enforcement and actions. It is unknown what else is out there,
she continued, because it is unknown across the US who owns
these properties or who owns these legal entities or trusts. It
is very important to get into that, she advised, since the
Pandora Papers and GFI research are just the tip of the iceberg.
She noted that cases are being seen in places where real estate
money laundering wasn't expected, such as Alaska, which points
that it is likely a much bigger problem than is known.
9:44:35 AM
CO-CHAIR FIELDS inquired about Kenneth Zong, an identified money
launderer in Alaska.
MS. DE BEL answered that he was indicted and his properties
across Alaska and elsewhere in the US seized because it was
proven they were purchased with money he received for helping
the Iranian government evade sanctions.
CO-CHAIR SPOHNHOLZ asked how Kenneth Zong's fraud and laundering
were identified.
MS. DE BEL replied that she doesn't know the specifics of how
law enforcement detected this case. She pointed out that only
after a lead is found can the threads be pulled to find all
properties someone owns, and that is why it is very helpful to
have more beneficial ownership information behind those
entities. She offered to get back to the committee with more
details on the Zong case.
9:46:17 AM
ROBERT SCHMIDT, Director, Division of Banking and Securities,
Department of Commerce, Community, and Economic Development
(DCCED), related that his understanding of Mr. Zong's indictment
comes from a 1/5/21 press release issued by the US Attorney's
Office for the District of Alaska announcing the indictment.
According to the press release, he said, Mr. Zong laundered
money in Korea, then the laundered money came into Anchorage and
other places, and Mr. Zong and his son invested it. At the time
of the press release, he continued, Mr. Zong was serving time in
Korea for violating Korea's money laundering laws, as well there
was police action/law enforcement action being taken by the
United Arab Emirates and the Republic of Georgia.
9:47:45 AM
CO-CHAIR SPOHNHOLZ asked whether the US's ability to prosecute
was driven by another government's prosecution or whether the US
was able to document something that allowed it to prosecute.
MR. SCHMIDT answered that the indictment happened when Mr. Zong
was already in jail in Korea, which suggests that the Korean
action significantly pre-dated any law enforcement action in the
US. The press release, he continued, said the prosecution would
not have been possible but for coordination with the law
enforcement agencies of other countries.
9:48:35 AM
CO-CHAIR FIELDS continued invited testimony on HB 405 and HB
406.
9:48:59 AM
ANDRES KNOBEL, Lead Researcher on Beneficial Ownership, Tax
Justice Network, during the hearing on HB 405 and HB 406,
provided a PowerPoint presentation titled "Addressing the risks
created by Trusts," dated 4/21/22. He paraphrased from the
second slide which stated [original punctuation provided]:
The Tax Justice Network believes our tax and financial
systems are our most powerful tools for creating a
just society that gives equal weight to the needs of
everyone. But under pressure from corporate giants
and the super-rich, our governments have programmed
these systems to prioritise the wealthiest over
everybody else wiring financial secrecy and tax havens
into the core of our global economy. This fuels
inequality, fosters corruption and undermines
democracy. We work to repair these injustices by
inspiring and equipping people and governments to
reprogramme their tax and financial systems.
MR. KNOBEL moved to the third slide titled "Risks created by
Trusts." He paraphrased from the slide, which stated [original
punctuation provided]:
Although many trusts are used for legal and legitimate
purposes, trusts' secrecy and asset protection
properties can be exploited by anyone (e.g. criminals,
money launderers, etc)
Not even authorities know how many trusts exist, the
assets they hold nor the people who benefit from them.
MR. KNOBEL displayed slide 4 to provide an example of the risks
created by trusts [as reported by The Guardian]. He paraphrased
from the slide, which stated [original punctuation provided]:
Alisher Usmanov's assets may be out of reach of
sanctions regime
Alisher Usmanov, the Russian oligarch once said to be
the UK's richest person, claims to have placed
hundreds of millions of pounds of his assets into an
irrevocable trust, potentially leaving them outside
the sanctions regime established by western
governments.
MR. KNOBEL showed slide 5 to provide another example of the
risks created by trusts [as reported by The Washington Post].
He paraphrased from the slide, which stated [original
punctuation provided]:
A Texas billionaire evaded $2 billion in taxes, feds
say. Now he's charged in the 'largest-ever' tax fraud
case.
MR. KNOBEL proceeded to slide 6 and continued his discussion of
risks created by trusts. He paraphrased from the slide, which
stated [original punctuation provided]:
World Bank & UNODC' "The puppet masters":
Investigators interviewed as part of this study argued
that the grand corruption investigations in our
database failed to capture the true extent to which
trusts are used. Investigators and prosecutors tend
not to bring charges against trusts, because of the
difficulty in proving their role in the crime.
FATF & EGMONT Group "Concealment of Beneficial
ownership"
The interaction of the trust with other legal persons
adds an additional layer of complexity and helps
prostrate efforts to discover beneficial ownership it
is also possible that the use of legal arrangements
may increase the difficulty of investigating and
identifying the beneficial owner, thereby explaining
their relatively low prevalence in the case study
sample.
MR. KNOBEL spoke to slide 7 titled "Solutions," which stated
[original punctuation provided]:
Require Trust Registration:
-To obtain legal validity (eg Puerto Rico, Czech
Republic, France)
-Whenever a trust: (i) is created according to local
laws, (ii) has local assets or operations, or (iii)
has local parties (eg any local settlor, trustee,
protector, beneficiary) [eg Argentina]
-To include information on beneficial owners (natural
persons) for every party of the trust that is an
entity, eg "corporate beneficiary" [eg the UK, EU]
MR. KNOBEL addressed slide 8 titled "Implementation," regarding
"FATF I 2022," "obtaining legal validity," trusts created
according to local laws, local assets or operations, or local
parties, and 12 EU countries that will also give public access.
[Due to technical difficulties, slide 8 was only partially
visible due to connectivity issues and the speaker was
indiscernible].
9:55:37 AM
The committee took a brief at-ease.
9:55:57 AM
MR. KNOBEL continued his PowerPoint presentation [but slides
still were not visible due to connectivity issues].
9:56:27 AM
The committee took another brief at-ease.
9:56:34 AM
CO-CHAIR FIELDS stated that the connectivity issues were
continuing, so the committee would try to get the testimony on
the record. He announced that the committee is working on
amendments to HB 405 and HB 406. He clarified that the intent
with HB 405 is not to provide public transparency of every trust
beneficiary, but to provide oversight through DCCED so the
department would be able to review who are trust beneficiaries,
compare them against the sanctions lists, and as necessary make
referrals to the US Department of the Treasury and the Office of
Foreign Assets Control (OFAC), which does not mean publicly
disclosing who is in a trust.
[HB 405 was held over.]
[HB 406 was held over.]