Sunday, April 10, 2016

secret companies a problem made in America...,


WaPo |  How can it be that the United States is more of a secrecy haven than Panama, the British Virgin Islands, etc.? Michael Findley, Daniel Nielson, and I decided to get to the bottom of this by shopping for shell companies on an industrial scale in a project called Global Shell Games. We impersonated a rogues’ gallery of 21 would-be money launderers, corrupt officials, and terrorist financiers, and sent over 7,000 emails asking firms like Mossack Fonseca to set up prohibited untraceable shell companies to shell in 180 countries.

We wanted to know whether these firms would require us to prove our identity in accord with international rules. This would help us to answer three important questions. First: how well do the global rules banning the formation of untraceable shell companies that hide the identity of the real owner work? Second: do incorporation firms respond differently to more or less risky customers? Third: which countries do a good, bad, or indifferent job of enforcing these Know Your Customer rules? The answers were counter-intuitive – and very worrying.

First, only about half of those firms that replied followed international rules by asking for the proper suite of ID documents from our fictitious ne’er-do-wells. Almost a quarter didn’t ask for any ID at all. Second, incorporation firms were generally just as willing to do business with high-risk customers as those with low-risk profiles, with the partial exception of customers who presented terrorism financing risks. Third –  getting back to Panama, we found that once again, firms in tax havens were actually much more likely to follow international Know Your Customer rules than those in the U.S. and other OECD countries.

Does this mean that Mossack Fonseca and other offshore firms are blameless? Hardly; if they facilitated real misdeeds, they deserve to be punished. But if this leak shows the damage that can be done with 200,000 offshore companies, remember that there are more than 15 million companies incorporated in the U.S. Then consider the advertising pitch of one U.S. incorporation firm: “A corporation is a legal person created by state statute that can be used as a fall guy, a servant, a good friend or a decoy. A person you control… yet cannot be held accountable for its actions. Imagine the possibilities!”