Security and Exchange Commission

Murder City

More than two decades ago, an ATF study of guns confiscated from criminals in St. Louis showed that the merchants of death were often federally licensed firearms dealers from white suburbs. There is no reason to believe that correlation has changed.

In 1999, AFT stats showed handguns used in violent crimes in the inner city of St. Louis were legally purchased by straw parties from legally licensed federal firearms dealer and then resold to criminals, which contradicts the NRA and gun manufacturers claims.

A version of this story appeared in the Riverfront Times, March 31, 1999.

[In 2020, 262 people were murdered in the city of St. Louis. Most of the homicides were committed with handguns. Among those who died was retired St. Louis Police Department Captain Dave Dorn.]

by C.D. Stelzer

“Sixth District Officers received a call for a man down in the alley. When they arrived, they observed the victim lying behind the left rear of his vehicle, bleeding from his nose and mouth area. He was unconscious and had suffered a gunshot wound to the left side of the stomach, car key laying near him. The driver’s door was open and there was blood splatter on a magazine, which was in the center of the front seat.”

The staccato lines of a police report, this one attached to the name of Tyrone Polk, who died on the night of May 28, 1998, in an alley in the 8600 block of Partridge Avenue, a neighborhood of well-kept brick bungalows north of Calvary Cemetery. One neighbor reported hearing a shot fired behind her home sometime after 9:30 p.m; another neighbor discovered the body about an hour later. Polk, a 41-year-old black man, lived nearby in the 1500 block of McLaran Avenue.

The homicide remains unsolved. No suspect has been charged. The weapon, which the St. Louis police believe to be a handgun, has not been recovered. The investigation remains open. There is nothing extraordinary about the case — other than perhaps how routine this kind of gun play has become. Last year, 75 of the 80 firearms fatalities in the city of St. Louis were attributed to handguns, according to police records. Guns and the violence they cause are ubiquitous in urban settings such as the one in which Polk died. During the first 11 months of 1998, police registered 200 gun-related assaults in the same area. Polk’s death is just one of the more than 30,000 caused by firearms in the United States each year.

On the night Polk died of a gunshot wound in a North St. Louis alley, gun-industry executives were meeting in a strategy session 260 miles southwest of the city at Big Cedar Lodge, a posh resort on Table Rock Lake. The conference, sponsored by the National Shooting Sports Foundation (NSSF), focused on marketing: Marketing guns to women. Marketing guns to youth. Marketing guns to minorities.

At the same meeting, the gun-industry executives decided to pool millions of dollars of their profits and use the money for public-relations purposes. This joint fund has more recently been expanded to help coordinate legal expenses associated with a growing number of lawsuits filed against gun manufacturers.

If Proposition B passes in the April 6 election, it will permit citizens to lawfully carry concealed weapons, but it will do nothing to stop the illicit trade in firearms that now exists. The vituperative campaign has so far overshadowed Mayor Clarence Harmon’s recent announcement that St. Louis intends to follow the lead of five other cities in suing the gun industry for costs associated with firearms violence. If St. Louis models its lawsuit after those already filed, gun makers, distributors and dealers have serious cause for concern.

“The gun manufacturers have left us no choice but to pursue our legal option,” says Harmon. “After numerous discussions they have proven unwilling to cooperate with mayors on any action that would make guns safer or make it harder for guns to fall into the wrong hands. In addition, gun violence costs the city an enormous amount in taxpayer dollars, not to mention the psychological toll it takes on our citizens and our children.”

Now comes a study that may bolster the city’s case against gun manufacturers. Conducted by the federal Bureau of Alcohol, Tobacco and Firearms (ATF) and quietly released last month, the study shows just how these lethal weapons are allowed to “fall into the wrong hands,” as the mayor puts it. The ATF’s statistical analysis — of guns confiscated from criminals in St. Louis — strongly suggests that the merchants of death are most often federally licensed firearms dealers from mainly white suburbs. Moreover, the relatively brief time between the purchase of these guns from the dealers and their use in crimes in the black neighborhoods of the inner city suggests that some gun dealers are selling guns directly to criminals — or to “straw men” who turn around and sell them to criminals.

Sold in St. Louis

Although the police have not recovered the handgun used to kill Tyrone Polk, statistics compiled by the ATF in 1997-98 give a good indication of the types of weapons most often used in such crimes, as well as where they originate. The study traced crime guns recovered by metropolitan police departments in 27 cities.

In St. Louis, the .38-caliber Smith & Wesson revolver remains the weapon most frequently used by criminals, according to the ATF findings. Several cheap semiautomatic pistols are also favored, particularly among juveniles and young adults. Four of the local favorites are the Bryco, Lorcin, Raven and Davis. The last brand, which is still in production, retails for as little as $88.

The ATF tracked 1,194 guns confiscated in St. Louis back to the licensed gun dealers who sold them. A little more than 45 percent of the weapons traced back to gun dealers were purchased in Missouri. Another 10.1 percent were tracked to Illinois. Eight percent of the total came from Florida, a state that already permits the carrying of concealed weapons. The Sunshine State scored even higher among St. Louis criminals 18-24 years of age, accounting for 10.3 percent of the traceable guns seized in the city.

The ATF study gauges the period between the purchase of a firearm and its recovery by the police as an indicator of whether illegal trafficking in a particular type of gun is prevalent in a specific area. According to ATF guidelines, a “time to crime” of less than three years suggests that federal firearms licensees are selling guns directly to criminals or that the guns are being acquired indirectly through straw men who purchase weapons and then resell them. For instance, of the 41 traceable Ruger 9 mm pistols confiscated in the city of St. Louis over the course of a one year period, 24 — or 58.5 percent — were used for criminal purposes within three years of their purchase, according to the ATF analysis.

The numbers show a correlation indicating that criminals in the city of St. Louis acquire the plurality of their guns from licensed dealers located in the suburbs. The ATF has determined that nearly half of the firearms used to commit crimes in the city of St. Louis were acquired from licensed dealers in the state of Missouri. Only 26 firearms licensees and four pawnshops in the city sell guns, according to the ATF. By contrast, ATF records show 277 federally licensed gun dealers doing business in St. Louis County.

Take the Marshal Gun Shop in Dellwood, for example. Established in 1951, the shop advertises its weaponry in a Yellow Pages ad that depicts a cartoon sheriff showing off his badge. As a part of its “balanced” coverage of the concealed-weapons debate, the St. Louis Post-Dispatch recently painted a similarly innocent law-and-order image of the gun shop’s owner, 71-year-old Henry J. Cernicek. Shortly after the laudatory story appeared, on March 17, Edward L. Dowd, U.S. attorney for eastern Missouri, announced the indictment of Cernicek and two associates for violating federal firearms laws by selling and delivering approximately 300 firearms that were later seized from crime scenes from 1989-1996. The criminal case against the Cernicek is based on ATF tracking, which shows an average lapse of less than a year from the purchase of the guns at the dealers to their recovery by police — after the commission of a crime.

Dowd is cautious in talking about the Marshal Gun Shop case. He is also reluctant to postulate any all-encompassing theory about how crime guns are acquired. “The fact that a gun is seized from a crime scene doesn’t mean that it is an illegal sale,” says Dowd. “People can own them legally and commit a crime with them.”

Sometimes, though, it’s impossible to determine whether sales of handguns are legal. In other cases, it’s difficult to determine the number of firearms transactions that occur. Take the Fenton Pawn Shop case: In 1984, the ATF cited pawnshop owner Charles T. Sturdy for numerous violations of federal firearms regulations, including failure to maintain accurate and complete records, according to a federal-appeals-court summary of the case. Instead of revoking his license, the agency reprimanded Sturdy and allowed him to continue selling firearms. The ATF admonished the pawnshop owner again in 1989. It was not until 1993, nine years after Sturdy was first cited, that the agency finally revoked his license.

The flow of arms into the city from the suburbs continues. So far, 470 crime guns have been seized this year, according to a tally kept by the St. Louis Police Department.

Dead Men Walking

There is a symmetry in the alley behind Partridge Avenue, an order that belies the violence of 10 months ago: The houses made of bricks from the same kiln. The tiny backyards surveyed to the same dimensions. The white doors of the single-car garages, all in a row. None of it evokes danger — not now, not in the light of day. In a very real sense, though, the killing that occurred here personifies the gun industry’s target market. The bullet may not have had his name on it, but Polk, in many ways, was destined to become human prey. That he survived into middle age is worth noting. From the scant details of the police blotter, it is impossible to determine the motive for his homicide. But the ATF study gives some clues.

Excluding the general category of “firearms offenses,” narcotics cases were most often associated with traceable crime guns, representing nearly 20 percent of guns confiscated in St. Louis. The narcotics category is almost three times larger than the combined categories of assault, threats, burglary, theft and fraud. Among 18-24-year-olds, the correlation between drugs and guns is higher still, with narcotics busts accounting for nearly one-third of the crime guns seized.

In 1998, handguns accounted for 75 of 80 fatal shootings in the city, according to the latest available police statistics. Also according to police statistics, 16 of those murders occurred in the city’s 6th District, where Polk was slain.

The Missouri Department of Health catalogs the mayhem by ZIP code. In the 63147 ZIP code, where Polk died, 33 black males were victims of homicide between 1990 and 1997. In 1997, the latest year available from the Health Department, 121 blacks of both sexes in Polk’s age group (25-44 years of age) were the victims of firearms assaults in the city. By comparison, St. Louis County — with almost three times the population of the city and nearly 10 times the gun dealers — had a total of just 120 firearms assaults in all age categories combined during the same time period.

Between 1990 and 1997, 1,332 blacks, male and female, were murdered with firearms in the city of St. Louis. It is fitting that these figures have been compiled by the Health Department, because they represent an epidemic, an epidemic of violence.

Firing Back

Over the past decades there has been a continuing arms race between criminals and the police. As gun and ammo manufacturers offered a more deadly class of pistols and more powerful bullets, cops and robbers elicited the typical American consumer reaction — they went shopping. Six-shooters were scrapped for semiautomatics with 10-round magazines. The upshot is that crime and its flip side, self-defense and law enforcement, have provided one of the few potential areas of growth for an otherwise stagnant market.

“For whom do you think they are producing and marketing fingerprint-resistant-finished guns, or handguns that are modifiable into automatic machine guns, or handguns that shoot rifle shells?” asks Harmon. “Certainly not for home protection, certainly not for game hunters, certainly not for law-abiding citizens. They are only looking at their own bottom line,” says the mayor, referring to the gun manufacturers.

Because St. Louis has yet to file its suit, the mayor’s office is refusing to divulge the defendants it intends to name in its case against the gun industry. But the situation in St. Louis appears similar in some ways to Chicago, which filed suit in November, naming a long list of gun manufacturers, distributors and retailers. The latter group comprises suburban gun shops and sporting-goods stores, where firearms have allegedly been illegally sold with the knowledge that they would likely be used to commit crimes.

“In the city of Chicago, we have 600 or so people killed a year by handguns. They (the gun industry) can argue that handguns make people safer, but a lot it depends on the environment you are in,” says Matthew Getter, one of the attorneys for the city of Chicago involved in the case. “It is hard to argue that the city of Chicago or any major urban areas are safer as a result of the widespread yet illegal availability of guns.”

The Chicago case is based on the idea of public nuisance, Getter says. A public nuisance exists when there is an unreasonable risk of harm to public health, safety and welfare. The only danger the gun industry risks as a result of the Chicago lawsuit “is not making as much money on illegal sales as they are now,” says Getter.

“We know which dealers are selling guns that are ending up in the city of Chicago,” he adds. “It’s not hard to track how these guns are getting into the city. They are getting into the city because the dealers, who are located on the outskirts of the city, are selling guns to Chicago residents, where they know or should reasonably foresee that these guns are going to be brought back into the city illegally.”

The bottom line, in Getter’s opinion, is accountability. “A manufacturer is presumed to know his market. Any manufacturer who does not know what his market is, is not doing his job right,” he says. “The manufacturers designed these weapons to be attractive to criminals. They design these handguns to sometimes fit in your shirt pocket, to be easily concealed. They design them so as to not have such things as external hammers, because that way they get caught inside your pocket when you try to pull them out. They even advertise these guns as “snag-free,” says Getter. “These are not guns designed for legitimate purposes — they’re designed for killing human beings.”

The New Orleans lawsuit is different from Chicago’s in that it takes a more traditional liability approach against the gun industry, arguing that their products are unsafe.

In both cases, the gun industry continues to deny any responsibility for the carnage: “The vast majority of the American public think these suits are wrong and make no sense,” says Robert Delfay, president of the NSSF, the gun industry’s trade organization. “There is just no doubt in my mind that if we get out there and talk to some of these mayors about what this industry is already doing in the areas of safety and education and show them the National Safety Council statistics that show this as working and offer to work with them in their communities in developing educational programs, we can head off the vast majority of suits that may be anticipated out there.”

Contrary to Delfay’s remark, a bevy of big-city mayors, including Harmon, have already tried to hash out an agreement with gun-industry executives, to no avail.

The meeting took place here in St. Louis in August. Before the negotiating session, the U.S. Conference of Mayors had set up a gun-violence task force to look at the problem. Mayor Edward G. Rendell of Philadelphia chaired the group; Harmon acted as co-chair. After formulating a list of recommendations, the urban leaders requested a dialogue with the gun industry over issues such as the illicit handgun trade and consumer safety.

“The mayors went home with an understanding that they had come to some consensus with the gun manufacturers,” says Julie Stone, policy assistant to Harmon. “None of those things happened to the satisfaction of the mayors. We asked (the gun industry) to come to the table and talk to us first, and (Harmon) was very disappointed with the outcome.”

The list of actions the mayors requested the gun industry to support included limiting the number of guns a buyer could purchase to one a month. That restriction, which is meant to prevent illegal straw purchases, is modeled after state laws in Virginia, Maryland and South Carolina. The mayors also advocated the closing of a loophole that allows gun-show participants to evade compliance with the five-day waiting period under the federal Brady Law.

Target Market

As the gun industry prepares to meet the legal challenge, it has also embarked on a public-relations offensive, hiring Porter/ Novelli, a top New York PR firm, to spruce up its image. “I can’t emphasize strongly enough that the reason that these lawsuits have gone as far as they have is because this industry has done a very poor job of communicating what it stands for and what it does in the area of safety and education,” says Delfay.

The public-relations strategy Delfay espouses began to take shape last year, when the NSSF sponsored its Shooting Sports Summit at Big Cedar Lodge. The opening of the four-day Ozark affair took place in the Grandview Room, where conference participants nibbled on a continental breakfast amid the rustic splendor of a simulated Adirondack hunting lodge, complete with exposed beams, moose antlers and glassy-eyed trophy bucks staring down at them.

Many of the handguns being used for robberies, assaults and murders in American cities are manufactured by the same companies, such as Smith & Wesson, whose representatives attended the summit meeting, and therein lies the contradiction between image and reality. Although the gun industry has traditionally catered to sportsmen and hunters and continues to claim the wholesome virtues of rural America as its own, its markets are becoming increasingly urban.

Overall, the numbers of hunting and fishing licenses issued have declined slightly in Missouri, according to state conservation-commission records. The slide is indicative of a nationwide pattern. By 1996, the number of hunters had declined in the United States to 14 million, from 20.6 million in 1975, according to the U.S. Fish and Wildlife Service. Sales of revolvers and pistols have also dipped from the levels of a few years ago, according to the agency, which monitors firearms sales for tax purposes. Trade publications note that even the booming export market has slumped because of the economic crisis in Asia.

Companies such as Smith & Wesson have responded to decreased sales by diversifying. Eighteen percent of the venerable gun maker’s product line is devoted to such items as bicycle frames and safety glasses. Its rival, Sturm, Ruger, has branched out into making golf clubs. With market share down across the industry, gun manufacturers are appealing to conceal-and-carry customers.

“Handgun sales are down, so they’re using these concealed-weapons laws as a marketing ploy,” says Joseph P. Sudbay, a spokesman for Handgun Control Inc. “Go into a magazine store and pick up a handgun magazine, and everything is about handguns being more concealable, the pocket rockets, this whole concept. Instead of making a gun that’s less lethal and maybe safer, they’ve gone to something that appeals to this concealed-weapons market.”

Defense Budget

At the Ozark summit meeting, gun-industry leaders agreed to unify their efforts and contribute one-half of a percent of their gross profits to support an array of public-relations programs. Shooting Industry magazine estimated the value of the joint fund at $15 million. Since then, an agreement has been reached to double the amount of the contributions and use some of the money to defend the industry against the lawsuits filed by the cities of Chicago, New Orleans, Atlanta, Miami, Bridgeport, Conn., and, soon, St. Louis.

“With the tremendous challenges we have facing us, we need to not be duplicating effort or even having conflicting effort,” says Delfay. “We can head off these extreme lawsuits through education.” By labeling its efforts “educational,” the NSSF could skirt campaign-finance limits by paying for issue-oriented advertising that indirectly supports pro-gun candidates.

Last month, a federal jury in Brooklyn found 15 gun manufacturers negligent and nine of them liable for damages to seven shooting victims. This suit, as well as those filed by the cities, have had another unintentional consequence, forging a closer bond between the gun industry and the National Rifle Association (NRA). “We have been talking to the NRA (about) kinds of strategies, what states we could maybe focus on,” says Jack Adkins of the American Shooting Sports Council (ASSC), the lobbying group that represents the gun manufacturers. The NRA also played a role in recent removal of the Richard Feldman from the leadership of the ASSC, because Feldman was perceived as being too willing to compromise with industry adversaries.

NRA lobbyists in Georgia have already stymied Atlanta’s lawsuit by orchestrating the passage of a state law that makes suing gun manufacturers illegal. Similar efforts are afoot in the Florida Legislature.

Meanwhile, the battle has moved into the U.S. Congress, where Senate Democrats, including Dick Durbin of Illinois, have introduced a bill that would allow cities to recoup federal, as well as local, costs associated with the medical treatment of shooting victims. Examples of federal expenses include Medicaid, disability and unemployment payments to crime victims.

In the House, Rep. Bob Barr (R-Ga.), an NRA director, has countered the Senate bill with one that would squelch lawsuits seeking to hold gun manufacturers liable for crimes committed with their weapons. Barr may be the most outspoken of NRA supporters in Congress, but he is far from alone. The NRA’s influence has been acquired through its control of the third largest political-action committee in the country, which disbursed a total of more than $5.2 million during 1998 election cycle. More than $1.3 million of that money went to GOP congressional candidates; the NRA Political Victory Fund donated a little more than $283,000 to congressional Democrats.

The NRA has already provided the struggling gun industry with a windfall through its lobbying efforts in the 31 state legislatures that have now approved concealed-carry laws. Missouri is the first state to take a popular vote on the issue. Other state concealed-weapons laws have had the effect of creating a new legitimate market for the industry’s lethal weapons. In effect, the legal trade feeds off the illegal trade, forming a symbiotic relationship between legitimate gun toters and the pistol-packing criminals. The chief selling point is fear, with gun-related crimes or the perception of them acting to drive up the sales. It’s the kind of deadly demand gun makers and dealers are more than willing to supply for a price.

The gun industry, however, has chosen not to negotiate a ceasefire with the cities that have been victimized by their products. Although Feldman, the recently removed head of the ASSC, attended the St. Louis meeting — as did Ed Schultz, the CEO of Smith & Wesson — no agreement was reached. Local gun-industry executives who also attended the failed negotiating session included Dick Hammet of Olin Winchester and Gerald W. Bersett of Blount International Inc.

Bersett, an alumnus of the University of Missouri-Rolla, has a long and distinguished career in the gun industry. He has acted as the chairman of the NSSF in the past and served as an executive at Olin Winchester for 30 years before assuming the leadership of Sturm, Ruger, a prominent handgun manufacturer, in 1995. He now heads Blount’s Federal Cartridge Co., an ammunition manufacturer.

In his current position Bersett is paid $325,000 a year, according to Security and Exchange Commission filings. His contract allows for an annual bonus equal to his yearly income if he exceeds performance goals.

The marketing director of Federal Cartridge attended last year’s gun-industry conference at Big Cedar Lodge. In the pastoral setting, the guns-and-ammo crowd ruminated over strategies to increase sales in the hunting and target-shooting categories. Public-opinion researchers solicited their opinions, retailers contributed their 2 cents’ worth and salesmen pitched ideas. They talked about the approaching millennium and Internet sales, and, when they were done talking, some of the them retired to a reception sponsored by Budweiser beer. By no small coincidence, the maker of that beer, Anheuser-Busch Inc., has seen fit to support Prop B.

There is nothing in the itinerary that even hints at another one of the gun industry’s markets — tactical shooting. This is a euphemism for sniper fire, the targeting of two-legged quarry. But Federal Cartridge’s Gold Medal .308 caliber ammunition, loaded with the Sierra 168-grain hollow-point boat-tail bullet, is favored by snipers throughout the world, according to a story that appeared in the Arizona Republic last year.

Because the case is still open, St. Louis homicide detectives are unwilling to provide much information about Tyrone Polk’s murder. The police have refused to reveal the caliber of the weapon used in the crime, the make and model of Polk’s vehicle or, more important, whether Polk had a criminal history. To all but family and friends, he is an invisible man, an example of the anonymity that surrounds the victims of the gun trade.

South of the Border

This residential property at 5844 Marquita Ave. in Dallas is the registered address for AKR Ventures STL LLC and RedRose Capital LLC. Incorporation records tie both companies to James Ryan Redlingshafer Jr. of St. Louis and Phillip A. Rose, son of retired BNSF Railroad exec Matthew K. Rose.

One degree of separation: A Texas financier, with a stake in a controversial Mexican gold mine, is hooked up with St. Louis real estate baron James Ryan Redlingshafer Jr.    

The Mexican government’s Financial Intelligence Unit (UIF)  investigated a Dallas-based gold-mining company for alleged money laundering, according to a newspaper report in the Spanish language press published earlier this year. A director of that company is a business associate of St. Louis real estate investor James Ryan Redlingshafer Jr.

Redlingshafer, who resides in University City, is the organizer of St. Louis-based Artemis Holdings LLC with his father, James Ryan Redlingshafer Sr. That company received local media coverage last month for its violations of municipal and county laws related to demolition work on a Richmond Heights apartment building.

Though more far-flung, Redlingshafer Jr.’s other real estate ventures have garnered less attention, including the joint directorship and management of two Texas corporations with Phillip A. Rose of Westlake, Texas.

The range of Rose’s business activities is even wider. His diverse interests include sitting on the board of directors of DynaResource, the Dallas-based mining company, which controls a majority stake in the San Jose de Gracia gold mine in Mexico. He and his father, Matthew K. Rose, former CEO of the Burlington Northern Santa Fe Railway, own a controlling interest in the mining company through Golden Post Rail, a limited liability corporation.

Mauricio Flores, who writes the People Behind the Money column for La Razón de Mexico, discounts the possibility that the St. Louis real estate dealings are related to the subject of his reporting. He has, however, questioned why a reputable American financier would allow himself to become entangled in such a controversy. His May 5 column says DynaResource has been allegedly under investigation by the UIF since 2017 related to its gold-mining operations in the Mexican state of Sinaloa.

Journalist Mauricio Flores writes the People Behind the Money column for La Razon de Mexico.

Flores reported that the government probe stems from questions raised by a 2014 U.S. Security and Exchange Commission filing, which attracted the Mexican anti-corruption agency’s attention to gold ingots that DynaResource claimed were produced at the mine. That claim raised official eyebrows because the mine is not known to possess technology capable of processing raw ore into ingots, Flores reported. Other unidentified UIF records cited by Flores allege an unnamed mining company director’s assertion that the ingots were transferred to the mining company by an unidentified member of organized crime. Flores reported that Mexican authorities were  first alerted to the alleged money laundering in 2017 by Keith Piggot, the then-CEO of GoldGroup, a Canadian mining company. Over the last decade, DynaResource has been mired in litigation with GoldGroup, which holds a minority interest in the mine.

However sketchy this may seem, the allegations merit consideration because DynaResoure’s San Jose de Gracia gold mine is located in a region that is under the control of the Sinaloa Drug Cartel. The territory is essentially lawless, and thousands of its inhabitants have been displaced in recent years due to violence attributed to drug traffickers. Inexplicably, Sinaloa’s gold-mining operations have grown during the same time period, leading some informed sources to suspect that mine operators are paying protection money, or falling directly under the control of the cartels.

If this were not enough, DynaResource has encountered continuing labor and safety troubles at the mine. But these ongoing issues did not deter Golden Post Rail from investing $3.9 million in the company this year.

The Treasures of the Sierra Madre

Phillip A. Rose’s financial interests are not confined to The Treasures of the Sierra Madre, however.

North of the border, he and Redlingshafer Jr. are managers and directors of RedRose Capital LLC and AKR Ventures STL LLC — two Texas-based limited liability corporations engaged in acquiring real estate in Missouri. Redlingshafer Jr. is also the registered agent of the two companies. But the mailing address for both is listed as being hundreds of mile away from his suburban home in the St. Louis suburb of University City. According to Texas incorporation records, the registered address for the companies is  5844 Marquita Ave., a single-family residence in Dallas.

In this case, there is no proof of wrongdoing. It may even be argued that such unfettered capitalism is emblematic of good-old fashioned American (and Mexican) free enterprise. But but these transactions are also bereft of any transparency. In recent years, Byzantine networks of limited liability corporations have been the subject of investigations that have uncovered how such shell companies are used by the wealthy to secretly acquire real estate to hide assets and avoid taxes. These backroom transactions may be legal or illegal, but their purpose is the same. Since the publication of the Panama Papers in 2016 not much has changed.

Pending legislation before the lame duck session of Congress is seeking to shed some light on this dark place.

In an op-ed that appeared in The Hill this week, Rep. Carolyn B. Maloney (D-NY), House sponsor of the Corporate Transparency Act, outlined the problem and what is at stake:

“… Corporations and limited liability companies (LLCs) are formed at the state level in the U.S., and no U.S. state currently requires companies to disclose their true, beneficial owners. This means that the U.S. is the world capital of anonymous shell companies — and is a hub for not just money laundering but also terrorist financing. Yes, that’s right — the same terrorist groups that attack the U.S. are also using the U.S. financial system to move their money, and to finance their operations. It’s appalling, and it has to end. …”

The Cayman Connection

Republic Services claims no environmental woes to snare a billion-dollar-plus loan with the help of its offshore insurer. 

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Republic Services, owner of the radioactively-contaminated West Lake Landfill in St. Louis County, scored a $1.2 billion loan from a consortium of the world’s largest banks in 2014 by assuring its lenders that the company had no environmental problems that would effect its bottom line, StlReporter has learned.

Under the terms of the agreement signed on June 30, 2014, Republic claims that “existing environmental laws and existing environmental claims” could not reasonably be expected to a have a  “material adverse effect” on the company’s operations.  “Material adverse effect” is defined in the agreement as being a change that would negatively impact “operations, business, properties, assets or conditions, financial or otherwise, of the borrower and its subsidiaries taken as a whole.”

“No Problemo”

The assurances that the company has no notable environmental headaches came despite public controversy surrounding the environmental and health hazards posed by the company’s West Lake property, an EPA Superfund site, and corresponding calls for the buyout of nearby homeowners.

To qualify for the 2014 loan, the banks required Republic to assume liability for potential environmental issues and indemnify them against claims. Republic complied to the terms by designating an offshore subsidiary — the Bom Ambiente Insurance Co. of the Cayman Islands — as the company’s insurer. Unlike most of its other subsidiaries Bom Ambiente is exempted from the terms of the loan agreement.

Aon Insurance Management, a leading captive and reinsurance company, represents Bom Ambiente Insurance through its offices in the Cayman Islands, which are located in the same posh office building as a major offshore law firm.

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Spokespersons for Republic and Aon declined to comment.

So-called “captive insurance” companies are set up by their parent corporations as a means of providing affordable risk management services based on the concept of self insurance. Many risk-prone businesses locate their in-house insurance operations in the Cayman Islands to take advantage of favorable governmental regulations and the absence of income and capital gains taxes.

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Republic Services,  one of three parties liable for the EPA-mandated cleanup, opposes removing the West Lake waste. Instead, the company favors the terms of the original 2008 record of decision calling for capping the materials in place. That proposal is being reconsidered due to public opposition.  The cost of removal is estimated at $400 million or ten times the original plan.  But there seems to be more riding on the final decision than the cost of the clean up.

The future of the company may be at stake.

The banks that signed off on the five-year loan are among the most prominent financial institutions in the world. They include: Bank of America, JPMorgan Chase, Wells Fargo, Barclays, BNP Paribas, Union Bank and SunTrust. Bank of the America, the lead lender, has committed $87 million.

The loan agreement spells out how Republic can borrow the money over the course of the agreement through regular loans, advances on credit, or so-called, short-term “swing-line” loans. The agreement does not stipulate the purposes for which the Republic uses the borrowed money. But Bridgeton Landfill and Rock Road Industries, two Republic Services-owned companies connected to the troubled West Lake property, are among the hundreds of Republic subsidiaries that are a party to the loan agreement.

In Schedule 5.12 of the loan agreement, Republic says it has no issues to report related to environmental matters. But the company’s February 2016 Security and Exchange Commission 10-K report discloses that for 2014 Republic accrued more than $227 million in costs coping with environmental matters at its troubled West Lake property.

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In short, the company readily acknowledged the high cost of addressing environmental matters at West Lake to the SEC earlier this year, but denied any problems would have a “material adverse effect” in paying back its debt in the 2014 loan agreement. To do otherwise would be a breach of the loan agreement and could be considered a default.

A Slow-Motion Train Wreck

Republic Services acquired the environmentally-troubled Bridgeton and West Lake Landfills in 2008 when it merged with Allied Waste Services. The impacted landfills are now closed, but Republic continues to operate a transfer station at the same location, which has been an EPA Superfund site since 1990.

The history of radioactive contamination at West Lake dates back to 1973, when the waste was illegally dumped. Federal, state and local regulatory authorities have been aware of the problem for more than 40 years, but failed to act.

The inaction made matters worse.

In December 2010, Republic told the Missouri Department of Natural Resources that an underground fire was burning at the Bridgeton Landfill, which is directly next to the West Lake Landfill and part of the same Superfund site. The stench from the fire raised dormant public concerns.

By February 2013, MDNR had cited Republic for noxious odors. The next month the Missouri Attorney General sued the company for violations of state environmental laws. That case is still pending. A negotiated agreement between the state and Republic Services to build a barrier to stop the fire from advancing closer to the radioactive waste is also stalled, as is federal legislation that would hand the cleanup over to the U.S. Army Corps of Engineers.

During these delays, the fire has moved closer to the radioactive material.

Meantime, the MDNR and the EPA have confirmed that radioactive materials are known to have migrated off site, further contaminating air, soil and water. Private lawsuits have also been filed against the company.

To those unfamiliar with the world of high finance, the reporting discrepancies and ongoing issues at West Lake would seem enough to raise eyebrows among Republic’s individual and institutional investors, including  firms tied to billionaires Bill Gates and Warren Buffett.

But that hasn’t happened.

Apparently, Republic’s word is its bond among stock market traders. From a business perspective, environmental stewardship and standard accounting practices are based on the letter of the law. West Lake be damned. After all, the five-year, $1.2 billion loan is a fraction of  Republic’s long-term debt, which stands at $7.5 billion and counting.

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