Dealing with anonymity in business incorporation – AEI – American Enterprise Institute: Freedom, Opportunity, Enterprise30th March 2019
Think of a problem in the US or abroad that you care deeply about. Is it the opioid epidemic? Terrorism? Election meddling? Maybe rhino poaching? Any issue you name is facilitated in one way or another by the (ab)use of anonymous shell companies — limited liability corporations (LLCs) with no easily identifiable owner — a legal entity that anyone can register in the United States with less identification than is required to obtain a library card.
The effects of this are so wide-ranging that it boggles the mind to try and bring it all together. Pick your poison: national security, tax evasion, compliance, or privacy. Whatever your concern, the arguments and research are complete and well-developed. So, what to do? Proposed solutions and the actions taken thus far are equally varied, and the arguments for or against them are similarly solid. But the problem remains: the anonymous shell company.
Ultimately, moral courage is needed. The best solution is rarely some complex legislative initiative or fancy new agency. Congress should address this issue by simply changing the incentives of stakeholders: passing a law declaring it unlawful to knowingly contract with a business entity in which there is no known, identifiable owner.
Because business incorporation is done at the state level, this would incentivize US states to build upon their own transparency initiatives. Meanwhile, spreading risk more broadly would reduce the burden of compliance on US financial institutions by making it in everyone’s interest to “know your customer.” It would also send a clear moral signal to those around the world working on related issues, such as asset return, offshore finance, corruption, and military procurement, that the United States is finally turning the corner.
“Americans can be trusted to do the right thing, but only after exhausting all other possible alternatives.” This adage is both insulting and reassuring. Regardless, after a decade of attempts to address issues with anonymous shell companies, it seems that Americans are finally inching closer to doing the “right thing.” Thankfully, the morally correct answer to persistent and wide-ranging problems is often much simpler than it is made out to be.
Clay R. Fuller will further dissect the issue of anonymous shell companies as a panelist at the Atlantic Council event titled “Dealing with the Offshore Economy” on Tuesday, April 2.