Small businesses support laws that end anonymous companies
The take away: Setting up an anonymous company in the US is easy, with little paperwork and even fewer questions. These shell companies do no real business, but are often used for corrupt and criminal purposes; purposes that hurt small businesses in a number of ways. Now, Congressional lawmakers from both sides of the aisle are working together to put a stop to anonymous shell companies.
In the midst of the predominantly regressive legislation currently moving through Congress, lawmakers from both parties recently introduced positive bills aimed at reducing shell company corruption and other criminal activity — bills that are good for Main Street small business owners.
In the House, Representatives Peter King (R-NY) and Carolyn Maloney (D-NY) introduced the Corporate Transparency Act. In the Senate, Senators Chuck Grassley (R-IA) and Sheldon Whitehouse (D-RI) introduced a companion bill called the True Incorporation Transparency for Law Enforcement (TITLE) Act. These bills would put an end to US anonymous shell companies by requiring American companies to disclose information about the real people who own or control them (known as the “beneficial owners”) when they create the company.
Creating a shell company in the US takes less information than acquiring a driver’s license, or in some states, even a library card. These shell companies do no real business, but are often set up to hide people’s identities and move or launder money with few questions asked. Anonymous companies are a favorite tool of criminals; corrupt foreign officials, narco-traffickers, terrorists, arms dealers, and tax evaders.
Shell companies harm small businesses in a number of ways:
- Anonymous companies fuel corruption, and corruption is bad for small businesses. Corruption distorts the markets by not allowing the best and most competitive companies to win contracts and have their projects approved.
- Anonymous companies help unscrupulous businesses or employees steal from other businesses. For example, a couple, Larayne Whitehead and Chris Johnson, created a string of anonymously owned American companies. They won U.S. contracts by submitting extremely low bids and then they convinced other businesses to act as subcontractors to supply the goods or services. The subcontractors were never paid, the scammers took all of the fees, and they set up new companies to make it difficult to track them down.
- Anonymous companies help businesses illegally obtain federal contracts designated for business groups (i.e. female-owned businesses, minority, veteran). In one such fraudulent scheme, a construction company executive in Pennsylvania anonymously hid behind a Connecticut-based company nominally owned by a person of Filipino descent in order to receive preferential treatment in US contracting. In Pennsylvania alone, he won 300 contracts he otherwise wouldn’t have been eligible to receive for a total of $136 million.
- Anonymous companies can hide conflicts of interests in contracting awards. One U.S. defense contractor, for example, used his position to secure more than $1.1 million worth of contracts for a Tennessee-based company that he secretly owned but that his wife ran under her maiden name to hide their conflict of interest.
- Anonymous companies cost businesses money and squash innovation through facilitating patent trolls. Patent trolls use anonymous shell companies to file lawsuits, costing the companies they target $80 billion per year in lost profits and legal fees. These lawsuits serve to squash innovation and harm fragile start-ups.
- Anonymous companies are a significant tool for tax evasion by large companies. Small business owners are proud to pay their fair share of taxes. Large corporations use shell companies to shift profits to tax havens overseas, avoiding taxes in the US or other countries where they actually transact productive businesses. This puts small business owners at a competitive disadvantage and deprives the community of valuable revenue that is critical to the local economy.
By requiring transparency in beneficial ownership, the Corporate Transparency Act and TITLE Act ensure that small businesses are protected. The bills pave the way to less fraud, tax evasion, contract cronyism, and criminal activity, which helps put small business owners on a more level playing field. Moreover, by creating a safer, more transparent economy, small businesses will benefit from a more stable economic climate.