It's easier to open an anonymous shell company than to acquire a library card in any of the 50 U.S. states, according to a report by Global Financial Integrity (GFI).
Every state lacks at least some essential information on companies established under their state corporation laws, and not one state requires disclosing who directly or indirectly controls or owns a company, according to GFI's report, “The Library Card Project: The Ease of Forming Anonymous Companies in the United States.” GFI is a Washington-based organization that studies illicit financial flows and promotes transparency in the international financial system.
The report, released March 21, compares states' requirements for incorporation with their counties' requirements for obtaining library cards. Every library system reviewed requires proof of address, while 23 states and the District of Columbia do not require that a company address be listed. Four states — Alaska, California, Ohio, and Virginia — do not require an address for the person doing the incorporation. A registered agent can be hired to create a company for a beneficial owner in all 50 states, the report says.
The Library Card Project came about after a GFI staff member found that it took a week, and multiple verifications of personal information, to receive a library card at Martin Luther King Jr. Memorial Library in Washington, while incorporation can be achieved in a matter of minutes, according to Lakshmi Kumar, a policy advocate for GFI. Kumar spoke at a March 22 panel discussion in Washington.
States argue that additional information collection would be an invasion of personal privacy and too expensive or technically difficult, and would slow the incorporation process. But it’s really a matter of balancing what is gained or lost through anonymity, Kumar told Tax Notes. States receive payments for incorporation. Library patrons, on the other hand, are willing to give up personal information to borrow books, and libraries want information to keep track of their inventory, she said.
As long as states such as Delaware, which has more companies than residents, refuse to acknowledge the harm caused by the inflow of dubious cash, there is little incentive for them to increase data collection, Kumar said. She pointed to the the damage done to London and Malta by accepting the creation of anonymous companies without question. At first, Londoners just saw that the property market was booming, she said, but eventually they realized that Russian oligarchs were behind the shift.
Anonymous shell corporations that keep ownership secret are often established solely to create bank accounts and aid wire transfers through which dirty money can be funneled, according to the report. GFI supports legislation that would make transparency a requirement for incorporation, including beneficial ownership information.
Such legislation is before both houses of Congress, noted Gary Kalman, executive director of the Financial Accountability and Corporate Transparency Coalition. If the United States moves to enforce transparency requirements in a manner similar to the EU's efforts, the two largest economies open to investment would be substantially closed off from corrupt money flows, Kalman told Tax Notes.
Kalman said it would be counterproductive to lay the responsibility for collecting beneficial ownership information on the IRS because then the information could not be released to law enforcement in the United States or abroad.
Kumar pointed out that 70 percent of all corruption cases over a 30-year span, as reviewed by the World Bank in 2012, relied on anonymous company structures to hide dirty money.
“What I find truly hard to comprehend is that the situation has changed not at all in so many years,” despite clear evidence from international investigations demonstrating corruption aided by the flow of dirty money, Kumar said.
Kelly Genternaar, vice president and deputy anti-money-laundering officer at E-Trade Financial Corp., said the banking industry would benefit from increased transparency requirements because it would lighten compliance regulations. E-Trade requires its customers to disclose beneficial ownership.
“We went to 10 percent instead of 25 percent on beneficial ownership thresholds because we had the technology and it was easier and safer to do,” Genternaar said, adding that if a client withholds beneficial ownership information, “we end the relationship.”