Financial Transparency Coalition

A Metaphor for U.S Incorporation Secrecy - flickr / waxorian

Imagine for a moment that airline security were left up to individual states, rather than the federal government. It’s perhaps not too much of a stretch of the imagination to conclude that different states would adopt different levels of security. For example, some states might require their passengers to provide identification to ensure they aren’t terrorists and pass their bags through x-ray machines to ensure those passengers aren’t trying to load illicit materials onto the airplane. Other states, though, might think it’s advantageous to reduce their security requirements. They might argue that by reducing screening, they could trim down wait times and attract more passengers into their airport. They might argue this would create more jobs and incomes within their state.

Do you see the problem with this? Of course by reducing security, those states would also attract another kind of crowd. The criminal kind. Terrorists would take advantage of these weak screening procedures. One state’s security gap would open the entire country to risk.

We would never allow it to happen in aviation. So why do we allow it to happen in banking?

In the United States, each state has a different set of incorporation transparency laws. In some states these laws are inclusive. In other states, you need little more than an expired Starbucks gift card to form a corporation. In Delaware and Wyoming, for example, clients can anonymously set up shell corporations (companies that are used exclusively for business transactions and do not have any real assets or operations).  Nevada, one of the worst offenders, does not require banks to even request the names of account or company shareholders, nor do they need to share that information with the federal government.  This means it’s easier to set up a corporation in Nevada than it is to get a library card.

Criminals can then use these anonymous shell corporations to access bank accounts, leave authorities unable to track their assets.

Nevada Secretary of State Ross Miller has called this a “business friendly ethos.” This is akin to calling an airport free of security “passenger friendly.” The truth is both examples are really just “criminal friendly.” And the list of criminals who have benefited from this system is extensive. Among those who have banked in the United States, are: an al-Qaeda fundraising organization, which used a company called Truman Used Auto Parts as a front; Iran, which owned a Manhattan skyscraper; and Viktor Bout, an arms trader nicknamed the “Merchant of Death” for his role in  funneling weapons to terrorists, including the  Taliban and al-Qaeda.

But Rep. Carolyn B. Maloney (D-NY), Rep. Barney Frank (D-MA) and Rep. Stephen F. Lynch (D-MA) are hoping to change all this. Yesterday these lawmakers introduced legislation that would require create a national standard in incorporation transparency. The bill, called the Incorporation Transparency and Law Enforcement Assistance Act, would require those who form corporations and limited liability companies (LLCs) to disclose the beneficial owners at the time companies are formed.

Heather Lowe, Global Financial Integrity’s Legal Counsel and Director of Government Affairs, had this praise for the bill:

The U.S. financial system can be a playground for corrupt, criminal, tax evading individuals from other countries. It is far too easy to gain access to financial services in the U.S. through anonymous U.S. corporations, while it is far too difficult for law enforcement groups to figure out who is really behind those corporations. Until this law is passed, foreign corrupt politicians, terrorists and drug traffickers can continue to easily hide their identities and their dubious assets behind the legal secrecy provided by American companies.

It’s true. We wouldn’t allow anyone to get on an airplane without telling us who they are. So why should we let anyone form a corporation and use our banking system without doing so?

Image License: This photo has Some Rights Reserved by waxorian