Wyoming: Cracking Open a Shell

August 18th, 2011

Jimmy Emmerson/Flickr*

In June, Reuters released the first article in “Shell Games,” their ongoing series of investigations into corporate secrecy.  The piece, “A little house of secrets on the Great Plains,” exposed Wyoming’s lax incorporation laws.  Featured prominently in the story was a house in Cheyenne that was the official headquarters of over 2,000 corporations, including some suspected of helping corrupt foreign leaders and dodging online gambling laws.

Wyoming has some of the most relaxed business incorporation rules in the country (along with Nevada and Delaware), which has made it a haven for those looking to establish shell companies, or even purchase already existing “shelf companies”  in order to mask their financial dealings.  The dangers these rules pose have been noted internationally, as the article points out:

The U.S. was declared “non-compliant” in four out of 40 categories monitored by the Financial Action Task Force, an international group fighting money laundering and terrorism finance, in a 2006 evaluation report, its most recent. Two of those ratings relate to scant information collected on the owners of corporations. The task force named Wyoming, Nevada and Delaware as secrecy havens.

But now it appears Wyoming is taking steps to correct this problem.  As reported in the Casper Star-Tribune, state legislators have begun progress on a bill to prevent the practice of using “incorporation agents,” individuals who form corporations on behalf of third parties so that secrecy can be maintained, by making those individuals responsible for the corporation’s actions.  The article continues:

It is designed to combat Internet ads by companies that offer to set up corporations in Wyoming with “nominees” for absentee directors in order to dodge liability in case of lawsuits.

Secretary of State Max Maxfield said many major corporations do not have nominees listed in place of bona fide directors.

“We’re going after the bottom feeders,” Maxfield said.

It is heartening that Wyoming legislators have finally acknowledged and confronted the well-documented illicit activity and tax evasion enabled by these policies.  Hopefully, this action will put further pressure on politicians in Delaware and Nevada to amend their laws and help bring the United States in line with the FATF money laundering recommendations.

Of course, a much quicker way to ensure that the U.S. cleans itself up is to pass a recently-introduced, bi-partisan piece of legislation, called the Incorporation Transparency And Law Enforcement Assistance Act of 2011.  The bill—introduced earlier this month by Sen. Carl Levin (D-MI) and Chuck Grassley (R-IA)—”would require companies to disclose the names of the beneficial owners of corporations and limited liability companies (LLCs) when formed.”  The legislation has been heralded as “crucial” by law enforcement groups, anti-money laundering advocates and financial transparency watchdogs.

For more on the Task Force’s work on the issue of shell companies and beneficial ownership, click here.

*Image License: Some rights reserved by jimmywayne

Written by Dan Hennessey

Follow @FinTrCo