How easy is it to set up a shell company, anyway?
"Delaware has the thickest bullet-proof jacket to protect you from the creditors of your business."
At first click, the website for Agents and Corporations, Inc., or IncNow, has the look and feel of a GoDaddy subsidiary, and it definitely feels like a website that has incorporated a lot of companies over the years.
Delaware has become famous as a state that has very loosey-goosey business laws, and it's those business laws that explain why IncNow exists. In most instances, business registration is fairly easy in Delaware—something encouraged by design, as the state made a conscious decision during the early 20th century to ensure it was the easiest state in the union in terms of starting a business.
Lewis S. Black, Jr., a lawyer with the Wilmington-based firm Morris, Nichols, Arsht & Tunnell, once wrote a booklet for the state that highlights the longstanding focus the region has on business needs—something that bleeds through the legislature and the courts, on top of the law.
"Certainly, some of the parts of the package that encourage companies to incorporate in Delaware can be imitated, even duplicated," Black wrote. "But most of them cannot. In any case, the total package, and the synergies that its various parts lend to one another, make Delaware the premier home for corporations today."
The problem, law enforcement officials say, is that it's too easy to hide your tracks if you don't want anyone to know you own a particular shell company. Sheldon Adelson hiding his tracks is one thing; money laundering and drug trafficking is another entirely.
And that can be a big danger for the average consumer. Shell companies in the U.S. are often used to conduct cons and scams, leaving victims none the wiser.
"The beauty of shell companies is being able to hide," former FBI special agent Dennis Lormel told CNN recently. "This lack of transparency is an impediment for law enforcement and the intelligence community."
Global Witness, a key advocacy group on this issue, has asked the U.S. to take a more proactive role on the issue, though it remains an uphill battle at this juncture due to the lax laws and the desire not to do anything in Congress.
"The penalty in the UK and US for having fake ID in the form of a passport is up to ten years in prison," Global Witness writes in its 2014 report on the issue, The Great Rip Off. "And yet anyone willing to pay a small amount of money can create the fake ID of a company, and then use this company to hide behind."
Five examples of people attempting to create shell companies to prove it can be done
- "The transaction required no lawyer, no complicated paperwork and no expensive trips to a tiny Caribbean island." — NBC New York reporters Chris Glorioso and Tom Burke, discussing the creation of Our Shell Company LLC, done as an investigative report for the news station.
- "Of course, there was no need to actually go to Delaware to form my company. The whole process can be done in 15 minutes online or—as I did, on October 28—over the phone. It cost $292." — Reporter Ken Silverstein, writing for Vice about his experience working with Agents and Corporations, Inc.
- "The biggest surprise of the study was that classic tax havens such as the Cayman Islands do a much better job of enforcing corporate transparency rules than the rich, powerful countries that have been the loudest in their calls for stricter standards. The United States in particular is one of the worst offenders." — Academics Michael Findley, Daniel Nielson, and Jason Sharman, discussing the findings of the research that led to their book, Global Shell Games.
- "We wanted to see if registering a company in Belize was different from registering a company in the United States. It was. Compared to the process in Belize, registering a company here in U.S. was easy." — Chana Joffe-Walt, describing the process NPR's Planet Money used to build a shell company of its own.
- "It's so easy to set up a tax haven in Panama, an intern can do it!" — A video, produced by the advocacy firm Public Citizen, highlighting the fact that the organization had its intern, Jess, create a shell company in Panama by simply making a phone call.
"Right now, our states require more identification to get a driver’s license than to set up an American company. When the companies are later misused by corrupt dictators, drug lords or terrorists laundering dirty money through cash payments for American real estate, law enforcement investigations are stymied by a lack of meaningful United States company ownership information."
— Carl Levin, the former U.S. senator from Michigan, writing in an op-ed to the New York Times about the issue of shell companies, an issue that highlights a conflict between the states and the country as a whole. While states like Delaware, Nevada and Wyoming have benefited financially from the existence of shell companies, these firms have created major regulatory headaches nationally. Levin, who was a major booster of legislation to rein in such firms, was ultimately stymied on the issue by politicians from states that directly benefited from more permissive laws.
We heard a rumor about a big movie hitting theaters this weekend. Yes, we've found a way to tie shell companies to Star Wars.
In the early '90s, when Enron was just a company that was beating its financial targets and George Lucas was only imagining what Jar Jar Binks would look like, the energy trading firm had launched a collaboration with California Public Retirement System, with the goal of investing money in the natural gas business. They called it "Joint Energy Development Investments," or Jedi. A few years later, when Calpers decided it wanted to leave the partnership in favor of a newer partnership called Jedi 2, Enron was looking around for a way to keep it going. However, it didn't have a partner to take on 3 percent of the business, which would it to avoid taxes on the Jedi.
Rather than expose itself to those additional charges, it created another shell company, This one, called Chewco, basically existed to take over part of Jedi, allowing the company to avoid taxes. Chewco eventually was used to hide roughly $400 million in profits that didn't exist.
It's a plot so absurd George Lucas must've written it.