State Bills in Wake of Panama Papers Leak ‘Window Dressing’

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Che Odom

Nevada and Wyoming, identified as the top U.S. tax havens in the Panama Papers leak, could enact laws that beef up business registration rules to better uncover and investigate scofflaws.

The measures, however, do nothing to stop bad actors from taking advantage of permissive tax laws, a University of Delaware professor said.

“These changes being considered by Wyoming and Nevada seem to be more of a political response than an effective response,” finance professor Charles Elson, a widely published expert in corporate governance and a director at HealthSouth Corp., told Bloomberg BNA.

The bills under consideration change corporate laws, which aren’t the best method for addressing the issue of tax violations, he said. A better option would be to amend federal and state tax laws, he said.

They come a year after the release of millions of leaked files from the Panama-based Mossack Fonseca & Co. law firm. The files, which included documents of wealthy individuals and public officials, revealed how the firm used shell companies to commit fraud and bribery, as well as to evade international sanctions and taxes.

According to the International Consortium of Investigative Journalists, Nevada ranked as the eighth most popular tax haven used by Mossack Fonseca to register the shell companies.

Reviewing Registered Agents

When they convene Feb. 6, Nevada lawmakers will consider a bill introduced on behalf of its secretary of state in response to the Panama Papers leak.

S.B. 41 would give Secretary of State Barbara Cegavske (R) the power to examine records of a registered agent when it deems necessary to determine whether a violation of the law governing registered agents has occurred.

Attempts to reach Cegavske or a spokesperson weren’t immediately successful.

In Wyoming, another state used by the Panama law firm, House members already have passed a bill that would require business entities to identify an individual contact person as its designated contact. That person could be a director, officer, company member or an employee.

H.B. 22 is now before the Senate.

Will Dinneen, spokesman for Secretary of State Ed Murray (R) who supports the bill, said the law was in the works before the Panama Papers were released and came as a result of state auditors’ examination of companies registered in the state.

‘Nothing More Than Window Dressing.’

Elson said he is skeptical such laws will do much to curb wrongdoing.

“Giving someone to contact doesn’t mean it is the right person to contact,” he said. “There’s not much you can do about someone who wants to commit a crime, and using corporate status to detect wrongdoing (of tax laws) does not seem effective.”

In fact, the measures being considered by Nevada and Wyoming are “nothing more than window dressing,” Stefanie Ostfeld, deputy head of the U.S. office of Global Witness, which advocates for greater disclosure to combat corruption internationally, told Bloomberg BNA.

“If states really want to solve this problem, they need to require the collection and public disclosure of the real people who own and control their companies,” she said. “Anything less allows terrorists, corrupt officials and tax evaders to continue to misuse American companies to stash their cash.”

Attract Illicit Activity

In November 2006, a report from the Treasury Department’s Financial Crimes Enforcement Network identified Delaware, Nevada, Oregon and Wyoming as four states that had formation and reporting requirements that could attract illicit activity through shell companies.

Lawmakers in Delaware, the most popular state in the U.S. for incorporating businesses, haven’t introduced any bills this term addressing tax havens or corporate registration.

Oregon officials told Bloomberg BNA in April 2016 that the state is working on changes to its beneficial ownership reporting requirements and the responsibilities of registered agents, but no legislation has been introduced.

Beneficial Owners

As a first step, the U.S. should establish central registries that publicly disclose beneficial ownership information of business entities, Chris Sanders, media relations manager of Transparency International, told Bloomberg BNA.

“This will help law enforcement, journalists and governments to do their job and help investors and citizens know who is behind the companies they invest in or buy from,” he said.

Transparency International, a nonprofit that advocates worldwide for measures that combat “abuse of power, bribery and secret deals,” supports the passage of federal legislation that would require U.S. companies to disclose information about the “real people who own or control them,” which would prevent those seeking corporate secrecy from shopping from state to state, Sander said.

Current Laws

Securities and Exchange Commission rules require disclosure of beneficial owners of companies that publicly trade their stock in the U.S., and the Treasury Department requires certain foreign-owned entities operating in the U.S. to report their beneficial owners.

Generally speaking, a beneficial owner is a person who enjoys the benefits of ownership though title to some form of property that is in another’s name.

In Congress, Rep. Carolyn B. Maloney (D-N.Y.) and Rep. Peter King (R-N.Y.) introduced legislation in February 2016 in the House that would require disclosure of corporate beneficial owners. Sen. Sheldon Whitehouse (D-R.I.) introduced companion legislation in the Senate. Both bills failed to reach a floor vote.

To contact the reporter on this story: Che Odom at COdom@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

For More Information

Text of the Nevada bill is available at http://src.bna.com/lVB.

Text of the Wyoming bill is available at http://src.bna.com/lVz.

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