Delaware ready to crack down on anonymous shell companies

At long last, the U.S. may be moving toward preventing the types of anonymous shell companies that criminals, kleptocrats, and arms dealers have long sought. But just as Delaware, the country’s leading anonymous shell company provider, gets on board with new transparency measures, Congress has taken a significant step back, gutting a bill that could have potentially ended the U.S.’s role as the world’s anonymous company capital.

In an unprecedented letter this month, Delaware Secretary of State Jeffrey Bullock announced that his state was now in favor of ending anonymous shell company formation in the United States. Delaware has long been the poster child for providing the types of companies rogue regimes and terrorist networks use for financial flows — as well as one of the main road-blocks in efforts to finally provide some oversight to the U.S.’s company formation sector. It’s also the state that just so happens to have multiple shell company ties to the Trump campaign, and even to the president himself.

Bullock pointed to the “Counter Terrorism and Illicit Finance Act” bill, currently working its way through Congress, as the best way of ensuring criminals, terrorists, and kleptocrats can no longer set up anonymous shell companies in the U.S.

In the letter, addressed to Reps. Jeb Hensarling (R-TX) and Maxine Waters (D-CA), the chairman and ranking member of the House Committee on Financial Services, Bullock wrote:

“We support the framework contemplated in the draft, which proposes a collection of beneficial ownership information by the [Department of Treasury’s] Financial Crimes Enforcement Network (FinCEN) and is consistent with the kind of effective and sustainable national approach that we have long advocated. We believe FinCEN possesses the expertise to effectively implement a standardized framework for the collection of beneficial ownership information, rather than a piecemeal, state-based approach, which would create loopholes vulnerable to exploitation by bad actors…

“The legislation is properly tailored to require beneficial ownership disclosure only for those entities most likely to be utilized for illicit purposes.”

While the letter is long overdue, it represents a significant break from Delaware’s previous stance. The state, already a global leader in providing anonymous shell companies to anyone looking to keep finances away from journalists, investigators, and prying eyes alike, had been a stumbling block for further financial transparency in the U.S., and across the world.

“I think [the letter] is a game-changer,” Clark Gascoigne, deputy director of the Financial Accountability and Corporate Transparency (FACT) Coalition, told ThinkProgress.

Bullock’s letter couldn’t be more timely — or more needed. For years, Delaware has led America’s so-called “race to the bottom” when it comes to providing anonymous financial vehicles for arms dealers and despotic regimes.

As multiple studies have found, it remains easier to set up an anonymous shell company in the U.S. than it is to purchase a library card — thanks not only to Delaware but states like Nevada and Wyoming that have made it as easy as possible for anyone, regardless of criminality, to set up anonymous shell companies.

Moreover, as the letter notes, the U.S. doesn’t gather any details on the ultimate beneficiaries of the companies. U.S. states, which remain charged with overseeing company formation, largely ignore requirements about collecting identifying information regarding the beneficial owners of shell companies.

As such, the U.S. remains one of the primary destinations for people looking to hide their funds — or to help move money to fund extremist networks and organized crime groups. As a former Treasury special agent wrote this week, the U.S. remains “the easiest place in the world to set up an anonymous shell company.”

Not only has Delaware used its anonymous shell company system to generate over $1 billion in annual revenue, but the state, per one analysis, remains the “biggest single source of anonymous corporations in the world.” Or as another analyst said, “It’s not entirely beyond the realms of possibility that ISIS could be operating companies and trust funds domiciled in Delaware.”

Of course, those companies aren’t run simply by those living abroad; thanks to Donald Trump, these networks now reach straight to the White House. Trump not only owns nearly 400 business entities in Delaware, but his former campaign manager, Paul Manafort, also used Delaware shell companies in his alleged scheme to hide millions from tax authorities.

And in perhaps the most memorable instance, Trump’s longtime personal lawyer, Michael Cohen, was outed earlier this year for using a Delaware shell company to funnel $130,000 to adult film actress Stormy Daniels. All told, Cohen’s shell company has passed at least $2 million to others — payments that have raised some of the most significant questions pertaining to links the Trump campaign may have had with Russian oligarchs.

After all, as the Treasury Department wrote in 2015, post-Soviet criminal rings had taken an special liking to anonymous shell companies in the U.S. “Eurasian organized crime groups are a particular concern because of their systemic use of sophisticated schemes to move and conceal their criminal proceeds using U.S. banking institutions and U.S. incorporated shell companies,” the agency found.

Shelling for dictators

While Delaware’s new stance on shell companies is as unexpected as it is welcome, it might have come too late. Where the initial draft of the proposed “Counter Terrorism and Illicit Finance Act” bill contained lengthy details about collecting information about shell companies’ beneficial owners, the current iteration contains almost no language on beneficial ownership. Rather, it simply calls for a “study” on the topic.

Worse yet, the bill is scheduled for a vote on Thursday — without the language on beneficial ownership.

It’s unclear why, exactly, the language Delaware supported was dropped. “We don’t know exactly why it was stripped out, how it got stripped out. What we do know is we were completely blindsided by it,” Gascoigne said. “For this to get stripped out at the last minute is quite mind-boggling.”

If the bill passes without the language, America’s best opportunity to force more rigorous oversight of shell companies will have slipped by. All this while the U.K. moves forward with cracking down on anonymous shell companies in territories like the Cayman Islands and British Virgin Islands, forcing clients to look elsewhere to hide their money — clients who will see the U.S., as ever, as one of their best bets for continuing their financial subterfuge.



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Author: Casey Michel

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