Dark Money and the Fight for Financial Transparency

After making progress on promoting financial transparency to curb illicit global flows, the U.S. appears to be backsliding. Reform advocates are concerned by recent attempts to weaken beneficial ownership rules and delay key anti-money laundering measures. On April 4, the Corporations and Society Initiative at Stanford Graduate School of Business hosted “Dark Money: The Hidden Enablers of Crime and Global Exploitation,” a panel discussion focused on these concerns.  

The event brought together three leading voices in the field: Brooke Harrington, a sociology professor at Dartmouth whose research examines offshore finance; Rick Messick, founder of the Messick Group and a former World Bank legal advisor; and Gary Kalman, Executive Director of Transparency International U.S. The conversation was moderated by Stanford MSx student Michael Paquette.

Given the panel’s focus on financial transparency, the discussion began with the Corporate Transparency Act, a landmark piece of financial legislation enacted in 2021. Kalman explained that the CTA was designed to expose anonymous shell companies by requiring businesses to report their true owners, also known as “beneficial owners.” Before the law, people could easily create companies in the U.S. without ever disclosing who actually controlled them, a loophole that made the U.S. a haven for money laundering and sanctions evasion.

Kalman cited two chilling examples. After U.S. sanctions were imposed on Iran, it took years to discover that Iranian interests had secretly bought property on Manhattan’s Fifth Avenue through anonymous companies.

“Just think about that for a second,” he said.  “The easiest and safest and best place in the world to evade our economic sanctions is by buying property on Fifth Avenue.”

Even more disturbing, he said, was a case in Afghanistan, where the U.S. government unknowingly contracted with a company that was secretly owned by the Taliban—effectively funding the very group it was fighting.

“We were literally giving money to an organization that could use those monies to buy bullets and fire at our troops.”

These flagrant abuses and the potential for others prompted strong bipartisan support for the CTA, but recently the Trump administration significantly reduced the scope of the CTA by exempting domestic entities from most reporting requirements. The result: only foreign companies operating in the U.S. are required to report beneficial ownership, unless they set up a shell company in Delaware, which also allows exemption. Kalman warned that this move leaves enormous gaps that bad actors will likely continue to exploit.

Paquette asked whether existing banking regulations, specifically those requiring disclosure of beneficial owners when opening a limited liability company (LLC) bank account, will help provide transparency.

Kalman clarified that while banks do collect ownership information, they don’t automatically share it with law enforcement. He also pointed out that if someone forms a Delaware LLC but routes their finances through a bank in the Cayman Islands or Dubai, no ownership information is accessible within the U.S. system.

Rick Messick added that the vetting of beneficial ownership conducted by U.S. banks is superficial, as evidenced by the billions in fines they’ve paid for violating anti-money laundering (AML) rules and Know Your Customer (KYC) regulations. Messick said this underscores the need for a stronger, centralized reporting system like the one the CTA originally created.

When asked about the use of offshore accounts, sociologist Brooke Harrington explained that the offshore world isn’t just about secret bank accounts, it’s about customizable financial structures made from three basic legal tools: corporations, trusts, and foundations. These “building blocks,” she explained, are combined in countless ways to create financial vehicles tailored to clients’ needs.

“The offshore system sells secrecy,” she said. “That's what it sells. Tax evasion is one manifestation, but there are a whole suite of things that you might want secrecy for.”

Harrington pointed out that high-level officials from tax-free countries like Saudi Arabia or the UAE are frequent users of offshore systems. This secrecy helps them circumvent religious, political, and other constraints.  As an example, she raised the possibility of a finance minister who might use offshore structures to maintain the appearance of complying with Sharia law, while still funding a luxurious lifestyle through assets technically owned by trustees.

Harrington also described how offshore structures are used to bypass inheritance laws, avoid alimony or divorce settlements, and dodge debts.  These structures are designed to impose huge costs in the discovery of information. They create multiple layers of ownership and many barriers that make it extremely difficult to trace or access what’s been deliberately hidden. However, there are legal experts who specialize in navigating these opaque systems and recovering assets. She cited Daniel Hall of Burford Capital, a high-end asset recovery expert profiled in a 2017 Wall Street Journal article, who is known for tracking down wealthy debt evaders.

Ironically, Harrington noted, it's often the ego of the ultra-rich that betrays them. “Even though they pay for secrecy, they can’t resist flaunting their wealth,” she said. “They post photos of themselves smoking cigars at Claridge’s or showing off luxury travel, and that’s when Dan strikes, dispatching a process server before they can jet off and disappear.”

Paquette asked the panel to weigh in on the Trump administration’s recent move to pause enforcement of the Foreign Corrupt Practices Act (FCPA), a law that prohibits U.S. companies from bribing foreign officials, even in countries where such practices are common.

Messick stressed that this is a temporary 180-day pause (extendable to 360 days) intended to assess whether current enforcement aligns with U.S. economic interests. He noted that this “fact-finding” period could, in theory, result in a decision to resume enforcement if the evidence supports its value. Kalman emphasized that the FCPA is still the law and has not been repealed. The pause affects only enforcement, which falls under executive discretion. He also explained that the long-term impact may be limited.

“The FCPA has a statute of limitations of five years,” he explained, “which means that if I bribe somebody tomorrow and there is a new administration in four years, that administration can come back and prosecute me. So, it's not a free pass.”

Moreover, large multinational corporations have already invested heavily in FCPA compliance programs and are unlikely to dismantle them due to legal uncertainty and the cost of restarting later. Still, Kalman noted that businesses are growing increasingly frustrated by the lack of clarity.

“This is, sort of, the worst of all possible worlds,” he said, referring to the confusion surrounding enforcement.

However, Kalman pointed to important development in anti-bribery enforcement: the 2023 Foreign Extortion Prevention Act (FEPA), a law Transparency International helped advance. Unlike the FCPA, which targets those who pay bribes, FEPA focuses on punishing foreign officials who solicit them. Under FEPA, the U.S. can prosecute those officials when they attempt to extort U.S. companies, even if the bribe is ultimately accepted from a competitor.

Importantly, Kalman noted that FEPA was not included in the executive order pausing the FCPA, which means it remains fully enforceable. This adds a layer of legal risk for corrupt foreign officials and helps preserve some deterrence in international business dealings.

“Have we solved bribery in the world? No, don't misunderstand me. Companies are going to pay bribes and people are going to ask for bribes. But I don't think it's going to be open season the way some people think.”

The conversation shifted to informal mechanisms for enforcement and the concept of using public shaming to deter the ultra-wealthy from using offshore structures to dodge taxes or avoid creditors. Harrington explained that contrary to the belief that they are nearly shameless, they are often highly sensitive to public perception.

“They're just incredibly thin-skinned people,” she said. “Instead of riding off into the sunset with their billions and just enjoying them, they care very deeply about what other people think of them.”

Harrington believes that the shared norms that used to be in place to shame people have shifted, but she argued that tactics can be used to apply pressure effectively without the need for financial or legal resources.

“What we have to find out, and I think this is where sociology has a lot to contribute to this conversation, is what the pressure points of stigmatization actually are,” she said.

While Messick agreed that shame could be an effective tool for greater accountability, he drew a hard line when it comes to bankers, especially those involved in offshore finance. In his view, they are largely immune to shame, citing the billions in fines banks have paid for violations like money laundering and sanctions breaches with seemingly no behavioral change.

He half-jokingly suggested that banks, and some of their top executives, should face a “death penalty” equivalent: corporate dissolution and personal consequences. It’s the only solution, he argued, that might genuinely rein in the brazen behavior of people at financial institutions who enable offshore secrecy and corruption.

Harrington noted that this strategy has historical precedence. She shared the scandal of the South Sea Bubble which occurred in 1720 when speculation in shares of the British trading firm, South Sea Company, caused a massive stock market crash.

“After the South Sea bubble exploded and bankrupted 50% of the UK population, the UK outlawed corporations for about 100 years. They just didn't come back, you couldn't have a corporation.”

Harrington noted that the legal authority to revoke a charter still exists today.

“As far as I know, you can execute misbehaving companies. You can tell banks you no longer have a charter to operate. But nobody ever uses it.”

During the question-and-answer portion of the discussion, an audience member asked whether the influence of dark money in undisclosed political funding is more significant than the visible, legal money that flows through super PACs and other campaign finance channels.

Kalman said that while he focuses on dark money, the open flow of special interest money deserves just as much scrutiny. Although foreign money can occasionally find its way into the system, he believes it's harder than some assume.

The bigger issue, he said, is how normalized and pervasive corporate and special interest funding has become, especially after the U.S. Supreme Court’s 2010 Citizens United, ruling, which allowed vast sums of money to legally influence elections. Kalman noted that many voters have grown numb to the idea that billionaires or large corporations are funding candidates, making it harder to generate outrage.

While it's critical to continue fighting for transparency, he argued that focusing only on hidden money risks ignoring the larger problem: the corrosive influence of known special interest funding that operates in plain sight and often goes unchallenged.