You’ve probably heard of Swiss bank accounts which were Hollywood’s favorite tool for movie characters who were supposed to be rich. It was a way to hide money from the government. In the 2000s it got more difficult to hide money there so people moved their assets elsewhere, much of it ended up in the Cayman Islands.
But these days the new place to hide money might be in a new place, the Frontier City. Where is this city you ask? Some small town in the Caribbean or Panama? Maybe it’s the poor translation for an area in North Korea or something? Nope, it’s Cheyenne, Wyoming.
Wyoming is like Nevada and Delaware, they have some loose laws when it comes to creating corporations. Most of us think of corporations as an organization that employs people and makes money. But a corporation is just a legal entity that largely exists to separate the liabilities of a company from the company’s owners. Said another way, a corporation is just another person in the eyes of the government. And it’s pretty cheap to make this “person”. These “people” can be used to hide money and anyone can set up a corporation in one of these states.
Reuters investigated (yes some media outlets still do that) a house in Cheyenne that is the incorporation address of more than 2000 companies. Yes 2000 companies. For context, remember the Fortune 500 is 500 companies.
How are there 2000 companies there? Well many of these companies just exist on paper. Maybe they have a bank account but that’s about it. There is a company out there that just grows other companies and allows people to buy them. This can give the illusion of an established company since it had payed taxes for X number of years.
But how do people hide assets in these companies? Well for one thing rich and high profile people will use shell companies to make it harder to for people to track what they do with their money. So they’ll establish a company and put $1 million in it and use that money to buy a house. That way when you look up who owns the house it will just be a company.
But this is also used for nefarious purposes. A Nigerian Prince could funnel money out of the country by setting up a shell company. This does happen regularly. President Obama has been outspoken on more scrutiny of international transactions, but lax corporate laws here in the US make it fairly easy to hide money right here.
Make sure you read the story below. It does a decent job of translating a complicated world of corporations and shell companies into an easy to follow explanation of what is really going on and the implications of all these corporations. I’m a firm believer in more transparent corporate and tax laws, but many people save a lot of money on taxes every year by hiding money (many times legally) and only a small portion of that savings needs to go to more lobbying.
Read: SHELL GAMES: A Reuters Investigation
Photo: woody1778a
 By The Weakonomist |
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