Last year, Sens. Carl Levin (D-MI), Claire McCaskill (D-MO) and Chuck Grassley (R-IA) proposed legislation requiring states to collect information on those individuals forming corporations within their borders, in an effort to crack down tax avoidance and money laundering through fake companies. Currently, someone creating a corporation is required to give “less information to the State of incorporation than is needed to obtain a bank account or driver’s license and typically does not name a single beneficial owner.”
The Levin-McCaskill-Grassley bill was supposed to be marked up last week, but was derailed by Sen. Tom Carper (D-DE), who, according to Citizens for Tax Justice (CTJ), proposed changing the legislation to “allow the beneficial owner on record to be a shell company, rather than requiring it to be an actual human being.” This, for obvious reasons, would ruin the whole thing, if the point of the legislation is to prevent phantom companies from engaging in illegal activity. As CTJ explained:
Shell companies — as they are called because they don’t do any real business — are used for all kinds of illegal purposes, including laundering money from illegal activities and financing terrorists. They are also used extensively for tax evasion…Sen. Carper is obviously concerned about his state’s ability to maintain its status as the incorporation capital. But that can hardly take priority over addressing criminal activities and threats to national security. Let’s hope his colleagues on HSGAC are less myopic than he is.
The Tax Justice Network has actually named Delaware the world’s number one tax haven, ranking it ahead of familiar locales for hiding income like Switzerland and the Cayman Islands. As Levin has pointed out, the federal government uncovered “an individual who set up over 2,000 Delaware shell companies, opened bank accounts for those companies, and then moved $1.4 billion dollars through those bank accounts, all without revealing who was behind these transactions.”
In a different case, Immigration and Customs Enforcement “discovered a web of over 800 companies formed in all 50 states, all controlled by the same Panamanian entities.” The original company had been incorporated in, you guessed it, Delaware, and an investigation into the company’s suspicious wire transfers “hit a dead end when ICE was unable to discover who the beneficial owners of the corporations actually were.”
Obviously, privacy concerns shouldn’t be discounted here, but requiring that a company have one, real, actual person prove their existence before incorporation doesn’t seem like too much to ask. As the Government Accountability Office has found, as long as privacy concerns are balanced, “having more information would make using U.S. shell companies for illicit activities harder and give investigators more information to use in pursuing the actual owners.”