The explosion of dark money behind SuperPacs, particularly after the travesty of giving wealth even more power under the guise of “free speech” accorded as an individual right, got most of the news coverage. The travesty? The 2010 Supreme Court paean to money called Citizens United vs FEC. But what missed the headlines was that basic tool that corporate America has been using since the early 19th century to raise capital. The anonymity of corporations began almost as soon as they began, either because there were too many shareholders or folks simply did not want the trading world to know too much about who really controlled these entities.
Effectively, a corporate form allowed investors to buy shares in a company without personal exposure to the operational risks beyond their investment. If a corporation became liable for a civil or contractual wrong, except in very rare circumstances, the shareholders’ only exposure was their investment. The rest of their assets were safe. This also allowed corporations to raise massive levels of capital (soon adding the leverage of corporate debt), needed to build huge transportation and industrial behemoths that transformed the United States into the mega economy it is today.
As CorporateResourceGuide.com tells us: “In the early 19th century, several states enacted general incorporation laws authorizing all general business corporations to incorporate without specific legislative approval. Then various states began to eliminate the restrictions in an effort to attract business to their state. They did so because the incorporation business provided tax revenue for the state, fees for lawyers and accountants, and revenue for local newspapers, printers, etc.” The format exploded, adding limited liability companies [LLCs] in 1977.
Creating liquidity, facilitating and aggregating the buying and selling of American commodities, probably had its roots in the Chicago Board of Trade in 1864, expanding fiercely with help from the 1930s through the Commodity Exchange Act. And while stock markets can trace their roots to the Amsterdam Stock Exchange of 1530 (it began as a commodities exchange), with crude beginnings in the United States early in its existence, they did not really hit their stride until after the Civil War. After the 1929 crash, a series of regulatory statutes stabilized the marketplace. The American Stock Exchange and the New York Stock Exchange began early in American history, and the NADAQ (a virtual exchange) began in 1971. A few exchanges merged, and today the corporation and the LLC seem to be as common as blades of grass.
In today’s world, it is entirely too easy to hide behind a corporate form, some with secret overseas “holding companies,” with all kinds of mysterious interlocking relationships that are well hidden from view in cavernous file rooms of ubiquitous lawyers and “registered agents.” “Across the United States, registered agents provide routine corporate services, filing incorporation documents and annual reports. In many cases, they are the lone contact for anyone looking to sue companies or lodge a complaint.
“Experts have warned for years that the sprawling industry — comprising attorneys, part-time participants and multistate specialty operations representing thousands of companies — is a weak point in the U.S. financial system. While banks must vet customers, registered agents aren’t uniformly required to verify their identities… ‘If I were a criminal or ran a criminal enterprise, I would have a field day with registered agents, because I just need to find another adult with a pulse,’ said Sarah Beth Felix, a former banking compliance executive. ‘Who’s going to make sure they are doing the right thing?’
“Wyoming, Delaware and Nevada have been at the forefront of a national debate about whether to ramp up oversight of registered agents. Those states and a handful of others are havens for hidden wealth, prized by company owners for their low incorporation fees, scant regulation and offers of anonymity. During a 2009 congressional hearing, an official with the National Association of Secretaries of State noted that registered agents in Wyoming and Nevada had been seen as ‘poster children … in a bad way’ for lapses in the industry.
“In October, a bipartisan group of lawmakers proposed federal legislation that would require registered agents to scrutinize clients and report suspicious transactions. They drafted the measure, dubbed the Enablers Act, following publication of the Pandora Papers, a global investigation by the ICIJ [International Consortium of Investigative Journalists], The [Washington] Post and other media partners exposing how the global elite shield riches from taxing authorities, criminal probes and public accountability.” Debbie Cenziper, Will Fitzgibbon, Emily Anderson Stern, Michael Korsh and Alice Crites for the April 5th Washington Post. Good luck with that, but with Russians having used this convoluted ability to keep them deep in US assets, anonymously, the US government is demanding change.
Who knew that a war in Ukraine just might turn our nefarious corporate practices upside down? But these corrupting “wink wink” corporate/LLC shenanigans are truly horrible, particularly in Wyoming. “After the war began on Feb. 24, a coalition of experts called on Congress to pass the Enablers Act and other measures, pointing to revelations in the Pandora Papers that Russian billionaire Igor Makarov secretly held real estate and a 13-seat private jet through an LLC and trust in Wyoming. Makarov has previously said through his attorney that he has no personal relationship with Putin and that his trust was properly disclosed.
“Last year, a federal law for the first time required LLCs and similar business entities to provide the names and birth dates of their owners to a new government database. But that registry is not accessible to the public, and transparency advocates argue that the sheer volume of information may leave federal authorities unable to identify many fraudulent entries and the owners behind them. Delaware alone recorded more than 180,000 new LLCs in 2020, records show… The proposed Enablers Act would go further, requiring every registered agent not only to identify company owners but also to look for and report red flags.
“Some agents, however, have massive client lists — one operation in Delaware notes that it has represented more than 300,000 companies. Smaller agents may not have the means or ability to track down clients, particularly those who live abroad, experts say… Wyoming doesn’t keep a comprehensive list of registered agents, and some can be as elusive as the company owners they represent… ‘It’s like dealing with a three-card monte dealer. Can you find the card?’ said Stuart Rossman, litigation director at the National Consumer Law Center, who said he often has to hunt for registered agents when filing fraud complaints against companies with no known address or other point of contact. ‘I’m chasing smoke, and it’s intentional.’
“In Wyoming, the number of LLCs has soared in the past decade from about 4,200 to more than 220,000, state data shows. Companies established in the state have been listed in lawsuits alleging medical fraud in Russia, tax dodging in Hungary and bank theft in Zimbabwe, foreign court records show… [Lots of] Wyoming registered agents acknowledge knowing little or nothing about the owners of companies they are paid to front, or what function those companies serve. The industry of agents is diverse, and includes Wyoming’s House majority whip, a municipal court judge and a former Cheyenne City Council president. One agent represents more than 250 companies — dozens linked to foreign owners — from a beige camper parked at a barren crossroads north of Cheyenne, records and interviews show.” The Post. Next time someone tells you “what’s good for corporate America is good for the entire nation,” send them a link to this blog. The real Jackson Hole is deeper than most of us think!
I’m Peter Dekom, and that fat cat above (a Russian Blue) is laughing at all of us for our colossal tolerance of anonymous greed and avarice.
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