August 2, 2011 / 7:45 PM / 6 years ago

Shadowy shell companies targeted by Senate bill

WASHINGTON (Reuters) - State governments would have to identify persons forming corporations under legislation that was reintroduced on Tuesday in the Senate, taking aim at shadowy shell companies and anonymous corporate owners.

The 50 states could no longer allow the formation of corporations by unidentified persons, with some important exceptions, under the bipartisan bill that was put forward by senators Carl Levin and Charles Grassley.

“Today, it takes more information to obtain a driver’s license or open a U.S. bank account than it does to form a U.S. corporation,” said Levin, a Democrat.

“Our states don’t require anyone to name the owners of the corporations being formed under their laws, practically inviting people to misuse our corporations,” he said.

The Levin-Grassley measure has been introduced twice before in Congress, in 2008 and 2009. President Barack Obama supported it when he was a senator, but it has never gained enough backing to emerge from study at the committee level.

State governments, which make money from incorporation fees, and the U.S. Chamber of Commerce, the nation’s largest business lobbying group, have opposed the measure in the past.

This time around, the bill exempts many types of corporations, including banks, brokers, insurers, registered investment funds, charities and publicly traded companies, which already disclose vital information to U.S. regulators.

A Reuters special report in June found more than 2,000 companies were registered at the address of a small, brick house in Cheyenne, Wyoming. It was the headquarters of a business-incorporation firm that establishes shell companies, and a variant called “shelf” corporations -- seasoned shell companies made to look more legitimate by giving them credit and tax histories.

Reuters found scores of shell companies registered to the house in Cheyenne used nominee officers and directors to hide the identity of the real or “beneficial” owners -- the very practice which the Levin-Grassley bill seeks to end.

Delaware, Wyoming and Nevada are hotbeds of such activity, belying the popular image of such corporate secrecy being centered in offshore havens such as the Cayman Islands.

U.S. state governments allow the formation each year of almost 2 million corporations and limited liability companies without asking for the owners’ identity, according to a statement from Levin and Grassley, a Republican.

Their bill would require states to add a line to their existing incorporation forms requesting the names of the owners of a new corporation. States would not have to verify the names provided, but penalties would apply for falsification.

Law enforcement authorities would get access to the information with a subpoena or summons. Corporations bidding on federal contracts would have to provide the same ownership information to the government.

“Prosecutors of financial crimes follow the money,” Grassley said. “It’s hard for them to do that when the owners of shell corporations are able to hide their identities so easily. Setting consequences for submitting false ownership information would help law enforcement.”

Reporting by Kevin Drawbaugh and Brian Grow; Editing by Howard Goller, Gerald E. McCormick and Bernard Orr

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