How a Mini Movement Overturned Secret US Shell Companies

An earlier version of this article was posted in the Tax Justice Network’s Blog.

Swiss bankers, and many other tax haven operatives, have always complained that they are unfairly victimised by international anger over their financial secrecy practices. “What about Delaware,” they routinely asked, “how come they can get away with it?”

And, at least in this respect, they had a point, even though it was merely a cheap exercise in what-aboutism. But, as of January 1, no longer:

“An historic anti-corruption measure ending anonymous companies in the United States became law on Friday, capping a more than decade-long campaign by transparency advocates, after both Chambers of Congress voted to override the president’s veto of the annual defense bill.”

This is a major victory. As we have long pointed out, the United States has long been one of the world’s biggest, if not the biggest, tax havens: our latest Financial Secrecy Index ranks them as Number 2 worst offender.

The U.S. has provided secrecy on two main levels. First, at a federal level, where the US doesn’t share too much financial information with foreign governments whose residents or taxpayers stash assets in the U.S. Second, at a state level, where individual U.S. states have made it easy to set up impenetrable shell companies where it’s impossible for the forces of law, order and taxation to find out who owns a company’s assets. It has famously been easier to set up a secret shell company in the U.S. than it has been to obtain a library card. Some U.S. states, most famously Delaware, South Dakota, and Wyoming, have specialised in setting up cheap, sleazy company formation businesses which have stooped to catering to and abetting human traffickers, mafia organisations, North Korean despots and peddlers of nuclear materials.

Most positive of all, perhaps, is the amazing coalition that grew up in the US to oppose shell company secrecy, and the power that came with joining forces. This was a classic “fusion coalition“, led by the indefatigable Financial Accountability and Corporate Transparency (FACT) Coalition, which was originally set up under the leadership of Nicole Tichon, who was also Executive Director of our affiliate Tax Justice Network USA. FACT brought together a range of unlikely bedfellows, as they outline:

hundreds of national security experts, police and prosecutors, banks and credit unions, CEOs, the real estate sector, large businesses, small business owners, faith groups, anti-human trafficking groups, human rights organizations, global development NGOs, anti-corruption advocates, labor unions, and conservative and liberal think tanks.

The victory, and the long list of supporters that helped deliver it, highlights how “our” issues with tax havens can find support from across the political spectrum, and in this respect it mirrors our successes elsewhere in pushing for global reforms. For a look at the history of this movement, this is a good place to start.

This is an incomplete victory, of course. For one thing, the Corporate Transparency Act requires corporations and limited liability companies (LLCs) to tell law enforcement and others with legally mandated anti-money laundering responsibilities (such as financial institutions) information on the real, natural person (or “beneficial owner”) who owns and controls an entity at the point of formation, and update this information when there is a change — but this information is not required to be made publicly available (as is now partly required, for example, by the European Union). In addition, the U.S. is still a laggard when it comes to sharing information with other jurisdictions. We have argued that in many cases authorities should move beyond forcing legal entities and arrangements to disclose information to the relevant authorities, and to make certain information public.

But this is not to take away the significance of this hard-fought and well-earned victory.

Nicholas Shaxson is a journalist and writer on the staff of Tax Justice Network.