Offshore corporations: The secret shell game
Foreign-owned companies registered in Nevada increasingly have been ensnared in political scandals abroad, yet the state has made no recent attempt to determine who owns the hundreds of thousands of companies operating from the state, officials confirm.
The firms largely are so-called limited liability companies, a common form of incorporation, but hundreds of them in Nevada have shareholders or directors listing addresses in places like Panama, the British Virgin Islands and even the Seychelles off East Africa in the Indian Ocean.
Nevada and Wyoming became the focus of attention in the past two months after leaked documents from the archives of the Panama law firm Mossack Fonseca showed that the two Western states were frequently used to set up secret shell companies, often to allow owners to sidestep taxes or squirrel assets out of the sight of prying investigators, including law enforcement.
In the wake of the publication of the archives, known as the Panama Papers, Oregon Sen. Ron Wyden, the top Democrat on the Senate Finance Committee, wrote to officials in Wyoming and Nevada demanding answers to six questions by June 3.
In his May 10 letter, Wyden asked both states whether they audit companies such as Mossack Fonseca that offer company-formation services, and with what frequency. He also asked Nevada whether it had used its powers to identify the true owners of shell companies registered in the state.
In a response shared with McClatchy on Friday, Nevada Secretary of State Barbara K. Cegavske said that her office has not inquired since 2013 into the ownership of any of the 1,024 Nevada-registered companies that were set up by M.F. Corporate Services (Nevada) Limited, the local affiliate of Mossack Fonseca. That, she said, was because it was not asked to do so by any law enforcement agency.
The secretary of state’s office, she told Wyden, is not authorized to conduct investigations into illegal activities such as money laundering or tax evasion, and can demand ownership information about a company only if requested to do so by law enforcement. A state law changed in 2015, Cegavske noted, authorizes the state to look at companies if there is “a reasonable belief that a violation has occurred.”
Officials in the office of Wyoming Secretary of State Ed Murray did not return calls and emails for comment about the June 3 deadline. In a recent op-ed piece circulated to Wyoming newspapers, Murray made it clear he and staff have reviewed state law and don’t intend any big changes.
“While this discussion remains ongoing, the resounding consensus reached thus far by these roundtable leaders and lawmakers is that Wyoming’s current business laws are serving the purpose for which they are intended – to be ‘business friendly’ while also fighting fraud – and do not need significant revision at this time,” Murray wrote.
Wyden spokeswoman Lindsey Held said, “We are reviewing the response from Nevada and are expecting the response from Wyoming over the coming days. We appreciate their prompt responses.”
As part of the Panama Papers investigation, under the umbrella of the International Consortium of Investigative Journalists, McClatchy reported April 5 that foreigners were using Wyoming and Nevada to hide questionable assets. The report led Wyoming to open an investigation into the 24 companies registered there by Mossack Fonseca and its partners, after finding they had not carried out all their duties as registered agents.
Reports by McClatchy and its Panama Papers partners documented how Russian, Argentine and Brazilian middlemen were using Nevada to set up companies that had no U.S. business. Nevada companies tied to Brazilians are linked to a sprawling kickback probe in Latin America’s largest economy.
U.S. states like Nevada, Wyoming and Delaware do not require those setting up companies to say who the true owners are, allowing the companies to set up directors and shareholders who are proxies for those pulling the strings. Companies are generally required to have a live contact person associated with the company, but both Wyoming and Nevada found in the wake of the Panama Papers news that Mossack Fonseca affiliates failed to meet state requirements.
Concern that bad actors were setting up shop through shell companies in Nevada prompted a previous secretary of state in 2011 to set up a Corporate Ownership Fraud Task Force to work with the IRS to look into companies being used for fraudulent or criminal purposes.
Under Cegavske, however, the task force apparently had gone dormant. She did not respond to Wyden’s query about whether any criminal or civil prosecutions resulted from the work of the task force.
“This administration has no documents or records related to the task force,” Cegavske told Wyden in the letter.
The Panama Papers investigation showed that Nevada and Wyoming have become part of an international network of tax havens, often used by wealthy people around the globe to obscure assets amid layers of offshore companies.
Until the release of the Panama Papers, a trove of 11.5 million emails and internal documents that were leaked to German newspaper Süddeutsche Zeitung and shared with ICIJ and its partners, Mossack Fonseca was considered among the top five firms in the world in the creation of offshore companies. But the firm has retreated sharply since their publication.
Last week, the Nevada affiliate of Mossack Fonseca resigned as the registered agent for the companies it or its partners had set up in the state. It had earlier been fined $10,000 by Cegavske’s office.
The local office of the affiliate in Las Vegas bears a sign saying “closed,” and a woman inside did not answer the door on Thursday even though she saw a visitor outside.
The Chilean-born agent for the affiliate, Patricia Amunategui, has resigned as an officer of the company, Cegavske said in her letter.
Tim Johnson: email@example.com @timjohnson4