British plan to unmask shell companies puts pressure on US
Anti-corruption groups are praising a new initiative by British Prime Minister David Cameron to unmask the owners of hundreds of anonymous shell companies, and they are calling on other countries—particularly the United States—to follow suit.
Corporate secrecy can be an important tool for legitimate business ventures trying to maintain a competitive advantage. But as CNBC reported in the 2012 investigative documentary "Filthy Rich," shell companies are often used for tax evasion and money laundering by corrupt politicians, drug and arms dealers, even terrorists. The U.S. and U.K. have been prime locations for the companies, but in prepared remarks for an Open Government summit in London on Thursday, Cameron said enough is enough.
"For too long a small minority have hidden their business dealings behind a complicated web of shell companies, and this cloak of secrecy has fueled all manners of questionable practice—and downright illegality," Cameron said.
Under the plan, Britain will establish a register detailing the beneficial ownership of companies, and will open the data to the public.
"Today, I call on the rest of the world to join us in this journey," Cameron said. "Together, we can close the door on these shadowy, corrupt, illegal practices once and for all."
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"Life is about to get much more difficult for corrupt politicians, arms traders, drug traffickers and tax evaders," said Gavin Hayman, director of campaigns at Global Witness, which has been pushing for the change for years. In a statement, he also called on the European Union and the U.S. to follow suit.
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As CNBC reported last year, efforts by the Obama administration and members of Congress to change the laws have run into stiff opposition from business groups including the U.S. Chamber of Commerce, and by state officials in Delaware, Wyoming and Nevada, where company formation is big business.
"One of the things that has made America so successful is the relative ease by which you can file business paperwork and try to accomplish the America dream," Nevada Secretary of State Ross Miller told CNBC last year.
But CNBC found evidence some may be using the laws for other reasons.
The Justice Department has moved to seize millions of dollars of property purchased by shell companies traced to the minister of Forestry in the tiny West African nation of Equatorial Guinea—who also happens to be the son of that country's president.
In a 2011 civil complaint, the Justice Department alleged Teodoro Nguema Obiang Mangue used "extortion, bribery of a public official …misappropriation, embezzlement [and] theft of public funds" to obtain some $75 million worth of U.S. assets including a $30 million mansion in Malibu, a Gulfstream jet, and a white, crystal-encrusted glove from Michael Jackson's 1987 "Bad" tour. Obiang's government salary is less than $100,000 a year, and most citizens in Equatorial Guinea live on less than $2 per day.
In court papers, attorneys for Obiang have acknowledged he owns the property but deny he obtained it illegally. The case is set for trial in March.
The case has provided a rare glimpse into the world of shell companies. Most of the activity—by design—stays secret. Sen. Carl Levin, D-Mich., has been fighting for years to change that.
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"Our law enforcement community is pleading with us here in Washington to require states and their incorporation laws to list the beneficial owner, the real owner of the corporations," Levin told CNBC last year.
In August, Levin again introduced legislation that would require anyone who forms a corporation in the U.S. to disclose who is behind it. The bill has been sent to the Senate Judiciary Committee, which has no action scheduled.
—By CNBC's Scott Cohn. Follow him on Twitter @ScottCohnCNBC.