How financial secrecy has left the US wide open to kleptocrats

Financial secrecy, or the practice of maintaining anonymity of account ownership, is one of the main reasons Switzerland and the Cayman Islands were attractive options to criminal groups. But there’s a looming cloud over the US, and now some American states seem to be bigger magnets for kleptocrats.

The shell game

Shell corporations can simply be used by celebrities to keep prying paparazzi away from their assets. But, they are also a criminal’s best friend when it comes to hiding illicit funds.

The purpose of shell corporations is to blur the lines of ownership, and to protect the information held within. But the proliferation of corporations in states such as Delaware, Wyoming and Nevada is a direct result of the lax policies they enforce.

The state’s advantage

Typically, these states lack the natural resources of California and Texas, and need to make do without. In a bid to boost their economies, the states position themselves as the perfect place to build businesses.

US company service providers in these regions are almost never out of work due to the state’s negligence in collecting beneficial ownership information. Often times, state level executives intervene to drive home the point of poor policing when it comes to shell corporations.

Delaware reported a business registry income of close to $1 billion (almost a quarter of the state’s budget), but at what cost if the very people with holdings in the state are out to destroy the country?

Untangling the mess

Many regulatory authorities have chided these states time and again for their failure to put proper guidelines in place. The FATF, for example, has repeatedly slammed the country for insufficiently identifying and publishing beneficial ownership.

A shocking revelation also came to the fore during the Panama Papers information dump. A lot of organizations were being redirected to the US to set up their shell corporations there. This almost definitely sealed the fate of the country as a tax haven!

Issues of fraud, money laundering, tax evasion and terrorist financing only arise when shell corporations are shrouded in a veil of secrecy. Releasing/updating beneficial ownership information can go a long way in protecting the country’s interests.

The final word

Technological advancements enable quick and efficient investigations into an account holder’s past, properties and relationships. At the very least, a background check and an AML screening process must be employed to put the interests of the nation and its citizens over budget margins.

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