We’ve taken an interest in tax havens thanks to Nicholas Shaxson’s book Treasure Islands, which is a must read. Although the book gives a historical account of the rise of what he calls “offshore”, which includes forms of tax avoidance that extend beyond the use of secrecy jurisdictions, which gives the UK the leading role, Shaxson discusses is that the US is the now the biggest tax haven in the world. He discussed briefly the role of Wyoming, which has incorporation rules that are so lax that it is trivial to hide the owners of Wyoming domiciled companies.
An article in Reuters fleshes out this topic in more detail. I encourage you to read it in full. Key extracts:
The secretive business havens of Cyprus and the Cayman Islands face a potent rival: Cheyenne, Wyoming….
All the activity at 2710 Thomes is part of a little-noticed industry in the U.S.: the mass production of paper businesses…The hotbeds of the industry are three states with a light regulatory touch-Delaware, Wyoming and Nevada.
The pervasiveness of corporate secrecy on America’s shores stands in stark contrast to Washington’s message to the rest of the world. Since the September 11 attacks in 2001, the U.S. has been calling forcefully for greater transparency in global transactions, to lift the veil on shadowy money flows. During a debate in 2008, presidential candidate Barack Obama singled out Ugland House in the Cayman Islands, reportedly home to some 12,000 offshore corporations, as “either the biggest building or the biggest tax scam on record.”
Yet on U.S. soil, similar activity is perfectly legal…. Convicted felons can operate firms which create companies, and buy them with no background checks.
No states license mass incorporators, and only a few require them to formally register with state authorities. None collect the names and addresses of “beneficial owners,” the individuals with a controlling interest in corporations, according to a 2009 report by the National Association of Secretaries of State, a group for state officials overseeing incorporation. Wyoming and Nevada allow the real owners of corporations to hide behind “nominee” officers and directors with no direct role in the business, often executives of the mass incorporator.
“In the U.S., (business incorporation) is completely unregulated,” says Jason Sharman, a professor at Griffith University in Nathan, Australia, who is preparing a study for the World Bank on corporate formation worldwide. “Somalia has slightly higher standards than Wyoming and Nevada.”
An estimated 2 million corporations and limited liability companies are created each year in the U.S., according to Senate investigators. The Treasury Department has singled out LLCs as particularly vulnerable to being used as shell companies, as they can be owned by anyone and managed anonymously. Delaware, Nevada and Wyoming had 688,000 LLCs on file in 2009, up from 624,000 in 2007.
Treasury and state banking regulators say banks have flagged billions of dollars in suspicious transactions involving U.S. shell companies in recent years. On June 10, a federal judge in Oregon ordered a company registered there to pay $60 million for defrauding a Ukrainian government agency through sham transactions involving shell companies. The civil lawsuit described a network of U.S.-registered shells connected to fraud in Eastern Europe and Afghanistan.
A growing niche in the shell business is shelf corporations. Like paper-only shells, which enable the secrecy-minded to hide real ownership of assets, shelf companies are set up by firms like Wyoming Corporate Services, then left “on the shelf” to season for years. They’re then sold later to owners looking for a quick way to secure bank loans, bid on contracts, and project financial stability. To speed up business activity, shelf corporations can often be purchased with established bank accounts, credit histories and tax returns filed with the Internal Revenue Service.
“They just slot in your names, and you walk away with the company. Presto!” says Daniel E. Karson, executive managing director at investigative firm Kroll Inc. “The purpose is to conceal ownership.”…
Shell companies remain a headache for law-enforcement authorities. Officials say court-ordered subpoenas served on incorporators of shell and shelf corporations generally do deliver the names of the real owners hiding behind nominees. But if the owners are not U.S. citizens or companies, the investigation often hits a dead-end, they say.
There are additional hurdles. Wyoming Corporate Services charges $2,500 per year to supply an attorney who can provide an extra shield. Cheyenne attorney Graham Norris Jr. tells prospective clients sent to him by WCS that he will create a company on their behalf. That way, he says, he can invoke attorney-client privilege-adding a layer of privacy anytime there is an inquiry about their identities.
The in-depth report continues here.
Needless to say, on the one hand, we have the prospect of a budget deal that includes cuts to Medicare and on the other hand, tolerance of procedures that allow large scale tax evasion to occur (the IRS could stop this if it chose to by refusing to give IRS tax IDs to corporations that failed to provide the identities of owners). Not hard to see whose interests are served by this policy combo plate.