Sunday, July 10, 2011

As It Stands: Shell Corporations: The modern version of the old con game

By Dave Stancliff/For the Times-Standard

Posted: 07/10/2011 02:30:25 AM PDT

“Step right up, folks! It's your lucky day. Pick a shell. A pea is under one of the three. Find the pea and win the prize!”

You've heard of the “shell game.” It's been around since ancient Greece. It's also known as “Thimblerig,” an old Army game.

It's really a “short con” that's easy to pull off and swindle unsuspecting dupes. It's all about sleight of hand. You're never going to pick the right shell unless the operator wants you to. Which leads me to today's topic: A growing niche in the modern business con handbook is called shell corporations.

Like paper-only shells, shell companies are set up to hide the real ownership of assets. Once these secretive business havens were in the Cayman Islands and Cyprus, but that's changing rapidly.

For example, a recent investigation by Reuters discovered a “Cayman Island on the Great Plains.” Located in Wyoming. A single address (2710 Thomas Ave. in Cheyenne) is stuffed with an A-list of corporations. It's headquarters for Wyoming Corporate Services, a “business-incorporation specialist that establishes firms which can be used as 'shell' companies,” according to Reuters. In other words, if you want to hide assets, Wyoming Corporate Services is the place to go.

The company's website gleefully explains how “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!”

How about that? Creating your own fall guy? You'll be offered a bank account for your shadow identity, and a lawyer as a corporate director to invoke attorney-client privilege. But wait! There's more. You'll have appointed stand-in directors and officers as high as CEO.

Wyoming Corporate Services offers a variety of “shell” companies which come with years of regulatory filings behind them. A solidarity coveted by those interested in hiding their assets.

You, too, can create shell companies like the one set up by online-poker operators to evade a U.S. ban on Internet gambling. Or like the owner of two other firms who was banned from government contracting in January for selling counterfeit truck parts to the Pentagon.

Wyoming Corporate Services offers 700 shell companies for sale in 37 states. The hotbeds of the shell company industry are three states with the lightest regulations: Delaware, Wyoming, and Nevada.

Here's something else to consider: The incorporation industry, overseen by officials in the 50 states, has few rules. Convicted felons can operate firms which create companies, with no background checks.

According to the Reuters investigation, “No states license mass incorporators, and only a few require them to formally register with state authorities.” No states collect the names and addresses of “beneficial owners,” the individuals with a controlling interest in corporations, according to a 2009 report by the National Association of Secretaries of State, a group for state officials overseeing incorporation.

The loopholes in U.S. disclosure of bank-account and shell-company ownership are as numerous as holes in a block of Swiss cheese. The U.S. was declared “non-compliant” in four out of 40 categories monitored by the Financial Action Task Force, an international group fighting money laundering and terrorism finance, in its 2006 evaluation report.

Sen. Carl Levin, D-Mich., chairman of the Senate Homeland Security Committee's Permanent Subcommittee for Investigations, has introduced the Incorporation Transparency and Law Enforcement Assistance Act each year since 2008. The bill would require states to obtain and update information about the real owners of companies and impose civil and criminal sanctions for filing false information.

I'm not surprised that this bill has failed to pass. The 2006 U.S. Money Laundering Threat Assessment, prepared by 16 federal agencies, devoted a chapter to the ways U.S. shell companies can be attractive vehicles to hide ill-gotten funds. I have no doubt that special interest groups have been involved in smothering the bill.

“In the U.S., (business incorporation) is completely unregulated,” says Jason Sharman, a professor at Griffith University in Nathan, Australia. He is preparing a study for the World Bank on corporate formations worldwide, according to an Associated Press story. “Somalia has slightly higher standards than Wyoming and Nevada,” Sharman added.

An estimated 2 million corporations and limited liability companies are created each year in the U.S., according to Senate investigators.

As It Stands, step right up, ladies and gentlemen, and pick a company. Any company. Why pay taxes when you can play the shell game?

Other websites and online magazines carrying this column:

God’s Vacation - blog about metaphysics, spirituality,kundalini, synchronicity, mystical experiences, personal para-normal experiences, politics, comparative religions, global warming, the future, you name it.

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cross-referenced news and research resources about

shell corporations


US Senate Newswire - Comprehensive Real-Time News Feed for US Senate.


Latest Toys/Games News – scroll down (the 7th headline) strange site if you ask me.


The Federal Circle – Want advise on how to make money? Take a look at this site. The administrators also know how to make money…by bringing you aboard their team. I’m not recommending this site, just sharing it because it carried my column this week.


1 comment:

Tom Sebourn said...

Good article about the shell companies.