A Little House of Secrets on the Great Plains

[one...two...tree 2,762]

The secretive business havens of Cyprus and the Cayman Islands face a potent rival: Cheyenne, Wyoming.

At a single address in this sleepy city of 60,000 people, more than 2,000 companies are registered. The building, 2710 Thomes Avenue, isn't a shimmering skyscraper filled with A-list corporations. It's a 1,700-square-foot brick house with a manicured lawn, a few blocks from the State Capitol.

Neighbors say they see little activity there besides regular mail deliveries and a woman who steps outside for smoke breaks. Inside, however, the walls of the main room are covered floor to ceiling with numbered mailboxes labeled as corporate "suites." A bulky copy machine sits in the kitchen. In the living room, a woman in a headset answers calls and sorts bushels of mail.

A Reuters investigation has found the house at 2710 Thomes Avenue serves as a little Cayman Island on the Great Plains. It is the headquarters for Wyoming Corporate Services, a business-incorporation specialist that establishes firms which can be used as "shell" companies, paper entities able to hide assets.

Wyoming Corporate Services will help clients create a company, and more: set up a bank account for it; add a lawyer as a corporate director to invoke attorney-client privilege; even appoint stand-in directors and officers as high as CEO. Among its offerings is a variety of shell known as a "shelf" company, which comes with years of regulatory filings behind it, lending a greater feeling of solidity.

"A corporation is a legal person created by state statute that can be used as a fall guy, a servant, a good friend or a decoy," the company's website boasts. "A person you control... yet cannot be held accountable for its actions. Imagine the possibilities!"

Among the entities registered at 2710 Thomes, Reuters found, is a shelf company sheltering real-estate assets controlled by a jailed former prime minister of Ukraine, according to allegations made by a political rival in a federal court in California.

The owner of another shelf company at the address was indicted in April for allegedly helping online-poker operators evade a U.S. ban on Internet gambling. The owner of two other firms there was banned from government contracting in January for selling counterfeit truck parts to the Pentagon.

CASTING THE FIRST STONE

All the activity at 2710 Thomes is part of a little-noticed industry in the U.S.: the mass production of paper businesses. Scores of mass incorporators like Wyoming Corporate Services have set up shop. The hotbeds of the industry are three states with a light regulatory touch-Delaware, Wyoming and Nevada.

The pervasiveness of corporate secrecy on America's shores stands in stark contrast to Washington's message to the rest of the world. Since the September 11 attacks in 2001, the U.S. has been calling forcefully for greater transparency in global transactions, to lift the veil on shadowy money flows. During a debate in 2008, presidential candidate Barack Obama singled out Ugland House in the Cayman Islands, reportedly home to some 12,000 offshore corporations, as "either the biggest building or the biggest tax scam on record."

Yet on U.S. soil, similar activity is perfectly legal. The incorporation industry, overseen by officials in the 50 states, has few rules. Convicted felons can operate firms which create companies, and buy them with no background checks.

No states license mass incorporators, and only a few require them to formally register with state authorities. None collect the names and addresses of "beneficial owners," the individuals with a controlling interest in corporations, according to a 2009 report by the National Association of Secretaries of State, a group for state officials overseeing incorporation. Wyoming and Nevada allow the real owners of corporations to hide behind "nominee" officers and directors with no direct role in the business, often executives of the mass incorporator.

"In the U.S., (business incorporation) is completely unregulated," says Jason Sharman, a professor at Griffith University in Nathan, Australia, who is preparing a study for the World Bank on corporate formation worldwide. "Somalia has slightly higher standards than Wyoming and Nevada."

An estimated 2 million corporations and limited liability companies are created each year in the U.S., according to Senate investigators. The Treasury Department has singled out LLCs as particularly vulnerable to being used as shell companies, as they can be owned by anyone and managed anonymously. Delaware, Nevada and Wyoming had 688,000 LLCs on file in 2009, up from 624,000 in 2007.

Treasury and state banking regulators say banks have flagged billions of dollars in suspicious transactions involving U.S. shell companies in recent years. On June 10, a federal judge in Oregon ordered a company registered there to pay $60 million for defrauding a Ukrainian government agency through sham transactions involving shell companies. The civil lawsuit described a network of U.S.-registered shells connected to fraud in Eastern Europe and Afghanistan.

A growing niche in the shell business is shelf corporations. Like paper-only shells, which enable the secrecy-minded to hide real ownership of assets, shelf companies are set up by firms like Wyoming Corporate Services, then left "on the shelf" to season for years. They're then sold later to owners looking for a quick way to secure bank loans, bid on contracts, and project financial stability. To speed up business activity, shelf corporations can often be purchased with established bank accounts, credit histories and tax returns filed with the Internal Revenue Service.

"They just slot in your names, and you walk away with the company. Presto!" says Daniel E. Karson, executive managing director at investigative firm Kroll Inc. "The purpose is to conceal ownership."

On its website, Wyoming Corporate Services currently lists more than 700 shelf companies for sale in 37 states. The older they are, the more expensive, like Scotch whisky. Brookside Management Inc., formed in December 2004, sells for $5,995, while Knotty Management LLC, formed in May, costs just $645. In Delaware, incorporator Harvard Business Services markets First Family LLC, created in May 1997, for $10,000.

"If they're signing a large contract, they may not want it to look like they've just formed a company," said Brett Melson, director of U.S. sales at Harvard Business Services. But he added: "Unsavory characters can do a lot of bad things with the companies."

Shell and shelf companies do serve legitimate purposes. They provide a quick and cheap way for entrepreneurs to jump into business and create jobs. Businesses can use them to protect trade secrets. Politicians or other public figures may use a shell company to hold their home so that people with ill intent have a harder time locating them.

The state of Wyoming says it cracked down on incorporation services in 2009 after discovering that nearly 5,700 companies were registered to post-office boxes. New laws require companies to have a physical presence in the state through an owner or a registered agent, and make it a felony to submit false filings.

"What we want to have is good, quality legitimate businesses," said Patricia O'Brien, Wyoming's Deputy Secretary of State. "We don't regulate what the business itself does, but we are not recruiting businesses here that are questionable or illegal."

Wyoming Corporate Services is run by Gerald Pitts, its 54-year-old founder and president. On paper, he is a prolific businessman. Incorporation data provided by Westlaw, a unit of Thomson Reuters, show that Pitts is listed as a director, president or principal for at least 41 companies registered at 2710 Thomes Avenue.

Another 248 firms name Edge Financial Inc., another incorporation service, as their "manager." Gerald Pitts is the president of Edge Financial, according to records on file with the Wyoming secretary of state's office.

Companies registered at 2710 Thomes Avenue have been named in a dozen civil lawsuits alleging unpaid taxes, securities fraud and trademark infringement since 2007, a review of Westlaw data shows. State and federal tax authorities have filed liens against companies registered at the address seeking to collect more than $300,000 in unpaid taxes, according to Westlaw.

Pitts says Wyoming Corporate Services fully complies with the law and doesn't have any knowledge of how clients use the companies he registers. "However, we recognize that business entities (whether aged, shell or traditional) may be used for both good and ill," Pitts wrote in an email to Reuters. "WCS will always cooperate with law enforcement agencies who request information or assistance. WCS does not provide any product or service with the intent that it be used to violate the law."

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[slim 1,525]

In the hood, we just keep everything in our mama name.

[mawilson 2,133]

We need more government regulations to make it more difficult for people to create new businesses here in America.

Genius!

[Mr. Big Dog 10,747]

We need more government regulations to make it more difficult for people to create new businesses here in America.

Genius!

Why are shell corporations desirable? This is the corporate headquarter of over 2,000 corporations. How many jobs do you think they created here?

[Gary and Alla 3,694]

Why are shell corporations desirable? This is the corporate headquarter of over 2,000 corporations. How many jobs do you think they created here?

Stop taxing business in any way. You CAN NOT tax a business. Never. If you try they will either pass the tax on to their customers OR to their stockholders OR find a way to hide their money OR take their business to other countries.

The USA should be THE corporate and business tax shelter in the world. Hopefully the ONLY one. Do that, and there will be no unemployment problem in this country.

[Mr. Big Dog 10,747]

Stop taxing business in any way. You CAN NOT tax a business. Never. If you try they will either pass the tax on to their customers OR to their stockholders OR find a way to hide their money OR take their business to other countries.

The USA should be THE corporate and business tax shelter in the world. Hopefully the ONLY one. Do that, and there will be no unemployment problem in this country.

Right. That's what the Irish thought. Just offer the lowest tax rates in the EU and you'll fare better than the rest of them. Not working out so well for the little island, is it? They may have a bunch of corporations there - who are not paying taxes - but the work is actually done elsewhere in Europe where governments see to it that a qualified workforce is available. It's not that simple, really.

[Gary and Alla 3,694]

Right. That's what the Irish thought. Just offer the lowest tax rates in the EU and you'll fare better than the rest of them. Not working out so well for the little island, is it? They may have a bunch of corporations there - who are not paying taxes - but the work is actually done elsewhere in Europe where governments see to it that a qualified workforce is available. It's not that simple, really.

Because it is a little island. We aren't. Free rent does not necessarily overcome dogsh*t on the kitchen counter. Logistics are also important. Ireland is not a good habitat for business, eliminating taxes does not make it better.

The United States is an excellent habitat for business except for the taxes. Logistically the center of the earth, raw materials all present, plenty of educated labor. plenty of energy available of all sorts, modern transportation infrastrucure with portals to the entire world located conveniently around everywhere, two oceans and a huge Gulf PLUS the great lakes. Given a favorable tax system (we should have the best on earth so that it is a no-brainer to locate here) we could be the dominant business and employment center in the world.

We see it even within our country, with businesses flocking to states with lower taxes for business. When the feds get the clue the whole country will benefit.

Edited June 29, 2011 by Gary and Alla

[웃 910]

Because it is a little island. We aren't. Free rent does not necessarily overcome dogsh*t on the kitchen counter. Logistics are also important. Ireland is not a good habitat for business, eliminating taxes does not make it better.

The United States is an excellent habitat for business except for the taxes. Logistically the center of the earth, raw materials all present, plenty of educated labor. plenty of energy available of all sorts, modern transportation infrastrucure with portals to the entire world located conveniently around everywhere, two oceans and a huge Gulf PLUS the great lakes. Given a favorable tax system (we should have the best on earth so that it is a no-brainer to locate here) we could be the dominant business and employment center in the world.

We see it even within our country, with businesses flocking to states with lower taxes for business. When the feds get the clue the whole country will benefit.

:secret:Corporations don't necessarily "do business" in the places where taxes are lower. Often times they just "report all their profits in those places"...

therefore your well thought out plan has a big flaw.

Corporations would report profits in the USA but still employ 90% of its workers where labor is cheap

[mawilson 2,133]

Why are shell corporations desirable? This is the corporate headquarter of over 2,000 corporations. How many jobs do you think they created here?

But what's the solution? Start looking into each and every one of them to see which ones are desirable?

[Mr. Big Dog 10,747]

But what's the solution? Start looking into each and every one of them to see which ones are desirable?

No. The solution would be to get rid of shell corporations altogether. There's nothing the economy or the country gains from them. Always shady, always undesirable. Shouldn't exist. Period.