August 3, 2018

24 State Attorneys General Seek Change to Rule on Shell Companies

By Samuel Rubenfeld printed in Wall Street Journal

Decade-long effort received recent boosts from Delaware official, Treasury secretary

Two dozen state attorneys general joined the push to increase the transparency of shell companies by requiring them to disclose their owners.

Anonymous, or shell, companies are legal but they can be easily abused to hide or move illicit funds into the U.S., clearing the way for the money’s potential use.

The attorneys general in a joint letter to Congressional leaders said the use of shell companies allows human traffickers, drug networks and other criminals to launder and spend their money without accountability.

“Our investigations can stall when these companies are used to hide the identity of the individual or individuals who control or profit from the company,” they said.

Corporate formation is handled at the state level, but the federal government has tried for a decade to pass legislation mandating companies to identify their true, or beneficial, owners. That effort received a boost in recent months with the support of Delaware, which claims a billion-dollar incorporation industry, and from Treasury Secretary Steven Mnuchin, who wants a resolution by the end of the year.

The attorneys general say they want to ensure the legislation adopted by Congress addressing the issue allows for state and local law enforcement to access the information, and that the definition of “beneficial owner” doesn’t allow for loopholes potentially exploitable by criminals. Defining what constitutes a beneficial owner led an earlier version of the legislation to hit the shelf.

Activist groups such as the London-based Global Witness strongly supported the move by the state attorneys general.

“The vast majority of law-enforcement investigations are conducted at the state and local level, and until we give law enforcement the tools they need to keep up with criminals, the U.S. will continue to be a top choice for the world’s criminals and corrupt to hide,” said Alexandria Robins, an assistant policy adviser for Global Witness.

Write to Samuel Rubenfeld at Follow him on Twitter at @srubenfeld.