- The Washington Times - Tuesday, November 14, 2006

A top Justice Department official told a Senate subcommittee yesterday that while new businesses play an essential role in the nation’s economy, a growing number of “shell companies” now being formed legitimately could be used for money laundering, bribery, corruption, tax fraud and the financing of terrorist activities.

Associate Deputy Attorney General Stuart Nash told the Homeland Security and Governmental Affairs permanent subcommittee on investigations that a person without any identification can form a corporation and establish a new business nationwide “within as little as five minutes.”

“The corporation is then a legal entity that can engage in business and open a bank account,” Mr. Nash said. “Yet, some of the most important information about the corporation — its ownership — is nowhere recorded. If that corporation were to engage in fraudulent or negligent activity, it would be very difficult, or even impossible, to identify its beneficial owners.

“Domestic or foreign law-enforcement agents would be stymied in their attempts to conduct an investigation because they would be unable to find out who is behind the illegal activity,” he said.

The subcommittee is investigating the issue of states incorporating nearly 2 million new U.S. companies each year without identifying the company owners, and the law-enforcement problems that result when some of these companies become engaged in money laundering, tax evasion or other crimes.

“Although the vast majority of companies formed in the U.S. serve legitimate commercial purposes, they are attractive vehicles for those seeking to launder money, evade taxes or finance terrorism,” said Sen. Norm Coleman, Minnesota Republican and subcommittee chairman.

“Without company ownership information, it is often difficult and at times impossible for U.S. law enforcement to identify and prosecute the criminals behind U.S. shell companies that are engaged in illicit activities,” Mr. Coleman said.

The Government Accountability Office reported earlier this year that none of the 50 states routinely require applicants to disclose who will own a corporation and most states do not require ownership information for a new limited liability company. The report said the absence of ownership information allowed people to conceal their identities while operating as U.S. companies.

Sen. Carl Levin of Michigan, the committee’s ranking Democrat, said many states compete with each other to sign up new businesses — offering the service for a median fee of $100. For example, he said, Nevada boasts that it can set up a legitimate company within an hour.

Mr. Levin said the United States was home to 12 million companies in 2004, including 9 million corporations and 3.8 million limited-liability corporations.

In that year alone, he said, the 50 states incorporated more than 1.9 million new businesses. He called on the Justice Department to come up with the “proper corrections” to end what he called a “problem that has been with us for more than two decades.”

Mr. Levin said a person who wants to set up a U.S. company typically provides less information than is required to open a bank account or get a driver’s license.

In most cases, he said, they do not have to provide the name or address of a single owner of the new company.


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