Delaware, Den of Thieves?
By JOHN A. CASSARA
The New York Times, November 1, 2013
OUTSIDE of crimes of passion, criminal activity is typically motivated by greed.
As a special agent for the Treasury Department, I investigated financial crimes like money laundering and terrorism financing. I trained foreign police forces to “follow the money” and track the flow of capital across borders.
During these training sessions, I’d often hear this: “My agency has a financial crimes investigation. The money trail leads to the American state of Delaware. We can’t get any information and don’t know what to do. We are going to have to close our investigation. Can you help?"
The question embarrassed me. There was nothing I could do.
In the years I was assigned to Treasury’s Financial Crimes Enforcement Network, or Fincen, I observed many formal requests for assistance having to do with companies associated with Delaware, Nevada or Wyoming. These states have a tawdry image: they have become nearly synonymous with underground financing, tax evasion and other bad deeds facilitated by anonymous shell companies — or by companies lacking information on their “beneficial owners,” the person or entity that actually controls the company, not the (often meaningless) name under which the company is registered.
Our State and Treasury Departments routinely identify countries that are havens for financial crimes. But, whether because of shortsightedness or hypocrisy, we overlook the financial crimes that are abetted in our own country by lax state laws. While the problem is concentrated in Delaware, there has been a “race to the bottom” by other states that have enacted corporate secrecy laws to try to attract incorporation fees.
The Financial Action Task Force, an international body that sets standards for the fight against money laundering, terrorist financing and other threats to the international financial system, has repeatedly criticized America for failing to comply with a guideline requiring the disclosure of beneficial ownership information. The Organization for Economic Cooperation and Development, with which the task force is affiliated, has championed international standards for financial transparency, but cannot compel compliance.
Watchdog groups like the Organized Crime and Corruption Reporting Project, Global Financial Integrity and Global Witness say that anonymous companies registered in the United States have become the vehicle of choice for drug dealers, organized criminals and corrupt politicians to evade taxes and launder illicit funds. A study by researchers at Brigham Young University, the University of Texas and Griffith University in Australia concluded that America was the second easiest country, after Kenya, in which to incorporate a shell company.
Domestic law enforcement agencies are as stymied as foreign ones. In one case I worked on, American investigators had to give up their examination of a Nevada-based corporation that had received more than 3,700 suspicious wire transfers totaling $81 million over two years. The case did not result in prosecution because the investigators could not definitively identify the owners.
Anonymous corporations are not only favored tools of criminals, but they also facilitate corruption, particularly in the developing world. A recent World Bank study found that the United States was the favored destination for corrupt foreign politicians opening phantom companies to conceal their ill-gotten gains.
Last month, Representatives Maxine Waters of California and Carolyn B. Maloney of New York, the top Democrats on the House Financial Services Committee, introduced legislation that would require United States corporations to disclose to the Treasury Department their beneficial owners. On Thursday, Prime Minister David Cameron of Britain went even further, announcing that a planned national registry of companies’ true owners would be open to the public, not just to law enforcement authorities.
The proposal enjoys support from law enforcement experts like Dennis M. Lormel, who led the F.B.I.’s efforts against terrorism financing after 9/11, and the former Manhattan district attorney Robert M. Morgenthau (and his successor, Cyrus R. Vance Jr.).
While officials in Delaware, Wyoming and Nevada talk about their corporate “traditions,” I am unimpressed. Business incorporation fees have accounted for as much as a quarter of Delaware’s general revenues. It’s no surprise that officials in Dover and Wilmington want to protect their state’s status as a corporate registry, but if that means facilitating criminal activity, their stance is a form of willful blindness. America must require uniform corporate-registration practices if it is to persuade other nations to cooperate in the fight against financial crimes.
