Financial Transparency Coalition

At first glance, there’s nothing too remarkable about Delaware – a small, seemingly sleepy state on the US north-eastern coast. If people have heard of it at all, it’s probably in relation to being the home of chemical company DuPont or US Vice-president Joe Biden.

TRANSNATIONAL CRIME HAVEN
But mention the second smallest US state to corruption fighters, and they’ll tell you of a very different Delaware: a place where extreme corporate secrecy enables corrupt people, shady companies, drug traffickers, embezzlers and fraudsters to cover their tracks when shifting dirty money from one place to another. It’s a haven for transnational crime.

Low taxes, the state’s business-friendly laws and a sophisticated court system for hearing business disputes draw thousands of brand-name corporations to Delaware. In fact, nearly 65 per cent of Fortune 500 companies are incorporated there, making it the state with more corporations registered within its borders than people. In many cases, firms flock there for legitimate business reasons – but not everyone is squeaky clean.

STRICT CORPORATE SECRECY
Delaware is also home to thousands of anonymous shell companies thanks to its strict corporate secrecy rules. Got dark secrets to hide when setting up a business there? No problem! No data is collected on beneficial owners, and company formation agents based in the state can act as nominee directors. It’s a cinch for a criminal to set up a shell corporation to launder illicit money, and gain access to the US banking system. With the backing of a US corporate address to clean up their image, dodgy firms – including those run by Russian arms dealers and Serbian smugglers – can conduct their dirty tricks in peace.

Delaware has taken a small step to lift the veil of secrecy, but advocacy groups say it’s mere window dressing. In 2014, Delaware enacted legislation requiring some minimal disclosure of corporate ownership – but not to the public. Heather Lowe, legal counsel for Global Financial Integrity, said the measure does not “even approach the issue of anonymous Delaware corporations.’’

POOR COMPANY
But Delaware is not alone in the US. Nevada and Wyoming have similarly lax corporate registration laws and have attracted large numbers of shell companies, along with the registration fees that they add to state coffers. But Delaware is the leader. By hiding behind the cloak of an anonymous company, corrupt people are free to prey on ordinary citizens without attracting attention from authorities. According to Global Witness, lawyers used secret companies from Delaware and Nevada to con elderly people into investing their life savings in worthless enterprises, while a congressman used anonymous companies from Delaware and Louisiana to pocket almost half a million dollars in bribes.

Global Witness describes secret companies as “getaway cars for criminals and the corrupt across the globe”, but the United States, where you need to give more personal information to get a library card than set up a company, is certainly the weakest link.