FOR IMMEDIATE RELEASE
September 25, 2014
The Great Rip Off:
New Report Shows How Anonymous American Shell Companies
Are Used to Swindle Americans
More Info Required to Drive, Borrow a Book Than Set Up a Phony Corp
Washington, DC – With scams, frauds, and cons as prevalent as ever, a new report authored by Global Witness, with support from the FACT (Financial Accountability and Corporate Transparency) Coalition and others, thrusts anonymous American companies into the spotlight and demonstrates how crooks and the corrupt use them to rip people off.
In its report, The Great Rip Off, Global Witness analyzed a wide range of crimes and predatory behavior across the U.S. and found that they all had two things in common: all were carried out by anonymous owners of companies, and authorities are spending huge amounts of time and money trying to stop them. [Click here to view full report.]
“Lax U.S. laws enable criminals and hucksters to hide behind American companies to rip us all off,” said Stefanie Ostfeld, Global Witness Deputy Head of U.S. Office and FACT Steering Committee member. “Anonymous companies serve as a legal smokescreen for a myriad of criminal activity from drug dealing and forced labor to credit card scams and money laundering.”
In the U.S., companies are created at the state level, so the information required by each state varies. However, none of the 50 states require collection of the ultimate, or beneficial owner(s), of companies. Some states require shareholder information, but shareholders can be other companies with anonymous owners, or they can be “nominees” who essentially rent the use of their name, keeping the real owners of the company a secret. So at present, anonymous shell companies are perfectly legal across the U.S. As a result, law enforcement is required to expend vast amounts of time and money to locate the real owners and bring them to justice.
The report found specific examples of criminal activity hidden behind anonymous shell companies from 27 different states. However, for every case that has been identified, countless more may remain hidden. Some state findings include:
- An Ohio school district employee used a web of fake companies to abuse his position and bill for millions of dollars’ worth of services that school kids never received;
- Texas lawyers used sham companies from Delaware and Nevada to trick elderly people into investing their life savings in worthless enterprises;
- Con artists, nicknamed the “Three Hebrew Boys” tricked churchgoers and military personnel into investing millions in a South Carolina company that turned out to be a Ponzi scheme;
- The Iranian government used an anonymous company from New York to conceal its ownership of a skyscraper on 5th Avenue, in direct breach of sanctions;
- Convicted fraudsters set up ghost companies in South Dakota to swindle aspiring American entrepreneurs out of their capital by offering high return investments in imaginary biofuel projects.
To that end, the report recommends immediate action on bipartisan legislation currently pending in Congress that would require American companies to reveal their beneficial owners when they incorporate and to keep that information up to date.
“The Great Rip-Off shows that Americans need to wake up to the problem of anonymous U.S. companies and demand that Congress and their Secretary of State take meaningful action to shut the practice down,” commented Heather Lowe, Global Financial Integrity Director of Government Affairs and FACT Steering Committee member. “Meaningful action means taking measures that collect information about all of a company’s beneficial owners, ensuring that beneficial owners are human beings and not other companies, and looking at whether someone is controlling the company behind the scenes by considering trust arrangements or if someone is acting through an agent. Ideally, that information should be available to the public. Everyone should be able to know who they are doing business with.”
“Corporate secrecy ultimately cheats our communities,” says Jaimie Woo, Tax and Budget Associate for U.S. PIRG. “When anonymous shell companies are used for tax evasion, the public loses through cuts to public programs or higher taxes, and when big corporate donors dump secret cash into our elections, we lose control over our democracy. When they are used to defraud the Defense Department, we are all less safe.”
Global Witness, an investigative and advocacy organization, examines and exposes the economic networks behind conflict, corruption, and environmental destruction.
Founded in 2011, the Financial Accountability and Corporate Transparency (FACT) Coalition unites civil society representatives from small business, labor, government watchdog, faith-based, human rights, anti-corruption, public-interest, and international development organizations. We seek an honest and fair corporate tax code, greater transparency in corporate ownership and operations, and commonsense policies to combat the facilitation of money laundering and other criminal activity by the legitimate financial system.