It’s Time for the U.S. to Lead on Public Registries for Anonymous Shell Companies

          The UK and Australia recently revealed plans to create a public registry for shell companies. This registry would force corporations to disclose their real and beneficial owners upon incorporation, rather than allowing them to incorporate anonymously. The use of anonymous companies to hide financial activity from authorities has helped to facilitate all sorts of criminal practices, from defrauding consumers, to bilking resources out of our public agencies. These activities are often protected from scrutiny by legal loopholes and inadequate reporting requirements. Following the release of the Panama Papers, governments across the world have been cracking down on financial secrecy in an attempt to prevent abuse. Leaders from a number of countries recently met in London for an anti-corruption summit aimed at confronting global corruption. They called on their fellow world leaders to find consensus on how best to combat the legal ways in which entities exploit the financial system.

          Unfortunately, the United States is far from leading the international effort for transparency. Instead, the U. S. has been woefully at odds with international standards. At the London summit, representatives from known tax haven jurisdictions, like the Bahamas and the Cayman Islands, accused the U.S. of hypocrisy because states like Nevada, Wyoming, and Delaware are among the world’s worst offenders in terms of facilitating anonymous firms. According to the Tax Justice Network’s financial secrecy index, the U.S. ranks third overall in financial secrecy. That is far ahead of the Cayman Islands on a list of the most secretive jurisdictions on the globe. This weakness in our financial system  allows states like Delaware to serve as a home base for shell companies that want to do business in secret, sometimes to evade responsibility for illegal activity. There are some legitimate reasons for anonymity when setting up a corporation, but transparency policies that protect those legitimate interests while exposing illegal and inappropriate activity – at least to law enforcement authorities – can and should be adopted.  The United States should be a source of authority and leadership when it comes to the integrity of global financial institutions, but historically that hasn’t been the case.

          The lack of U.S. leadership is particularly confounding when you consider that the U.S. already utilizes [1] the strict reporting requirements of other countries to track down tax dodgers abroad. Congress needs to do more to increase financial accountability and transparency, and this includes working with other countries to create a means of disclosure for the true owners of U.S. shell companies. We cannot fall behind in this regard. As the world’s largest economy, and the most lucrative nation in which to invest, it’s important that the U.S. take the reins on financial accountability and help to end the anonymity that allows shell corporations to operate in secret.

          Following the anti-corruption summit in London, the White House has announced new rules for combating anonymous shell firms. However, this rule doesn’t go far enough to truly define what a “beneficial owner” is, and still leaves room for fraudsters to produce legal stand-ins, or “nominees”, to serve as the owner in order to continue to conceal their identities. There’s currently a bipartisan bill in the house that would make the names of the real owners of shell companies available to law enforcement. This would allow our regulatory bodies to subpoena those organizations facilitating illegal activity within our borders and find out who is responsible for their activities. When the names of those circumventing the law are exposed to the light of day, such practices become far less lucrative. The U.S. has the responsibility to set more than just a positive global example on this issue — we have responsibility to lead.

[1] Page 4.