Delaware: the friendly state

The late novelist Roald Dahl wrote: "And above all, watch with glittering eyes the whole world around you because the greatest secrets are always hidden in the most unlikely places."

Delaware is one of these places. It has about a quarter of the population of offshore centre Panama, yet it is estimated to have more than treble the number of active companies that the little republic has. While Panama is pilloried for offshore 'mischief', Delaware's image is pristine by comparison. One office alone in Wilmington is the registered legal address for 285,000 or so businesses; that total is similar to the estimated number of active companies in Panama.

Senator Carl Levin, America's 'witch-finder general' of offshore venality, whose office is only 102 miles' driving distance from Delaware, has said: "The law should assume that every transaction taking place in a tax haven is a sham." Does this include Delaware?

Richard Murphy of the Tax Justice Network claims that the state is the biggest single source of anonymous corporations in the world. But Delaware's concerns are not the same as Senator Levin's. Money is the state's objective.

About US$860m in taxes and fees was collected in 2011 from Delaware's corporate non-residents, such as Google, which represented a quarter of the state's total budget. In fairness, the Financial Crimes Enforcement Network, a division of the US treasury department, says that the states of Nevada, Wyoming and Oregon are also good locations for incorporating shell companies, although Delaware is seen as the least transparent and the one, therefore, providing the most secrecy.

Delaware is a haven where opaqueness is OK and Richard Geisenberger, Delaware's chief deputy secretary of state, has openly dismissed Senator Levin's call for beneficial ownership of companies to be automatically transparent (he is supported by the National Association of Secretaries of State and both the US Chamber of Commerce and, interestingly, the American Bar Association).

All of Senator Levin's efforts to introduce federal legislation have on three occasions been blocked at the senate committee stage. It is no coincidence that Delaware has hired a lobbyist to fight its corner; and a Delaware democrat is chair of the Senate Homeland Security and Government Affairs Committee, which decides the Levin proposal in Washington.

Golden eggs

Meanwhile, Geisenberger has avowed, as he puts it, not to do anything that "changes the friendliness of American business". America is indeed business-friendly, but what's sauce for the goose is not always sauce for the gander, not when the goose is laying golden eggs.

The relevance this has in Latin America for practitioners such as myself is the fact that the US, although not alone, has been especially consistent and particularly vocal in its criticism of using anonymous companies, through which illicit transactions can pass. For a long time now, two Central American offshore centres, Belize and Panama, have been in the spotlight as a result.

If the US is the flagship of the Organisation for Economic Co-operation and Development fleet launched to tackle international beneficial ownership rules, prospects are indeed grim. A recent World Bank Group and the United Nations Office on Drugs and Crime (UNODC) report supported this viewpoint. In terms of general performance in regulating shell companies it found that: "By far the worst performer of the countries reviewed is the United States. Out of 27 service providers under US jurisdiction returning a valid response, only three said they asked for any form of identity documentation, whereas the other (24) were prepared to form companies without conducting any due diligence whatsoever."

Delaware should legislate that corporate agents must have at least details of beneficial ownership on file as per their offshore counterparts. Imagine if standard offshore due diligence was also required. Many practitioners in Panama would agree when I say: we adopted their corporate law, they should adopt our corporate transparency rules.

As events unfold, take Roald Dahl's advice and keep watching with glittering eyes. For some, alas, their eyes may fill with tears as they watch principles of consistency, fairness and objectivity continue to be selectively applied. Is that a goose in Wilmington, Delaware laying an egg that I hear honking?

Derek R Sambrook is managing director of Trust Services SA and treasurer for the British Chamber of Commerce in Panama

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