WILMINGTON, Delaware--When passing through the main street of this town of approximately 70,000 people, I arrived at 1209 North Orange Street. The light brown, two-story building is owned by CT Corporation, a registered lobbying group.
According to the state, this one building is the registered address of approximately 315,000 companies.
The British newspaper The Guardian reported that large companies such as Apple and Walmart, as well as companies associated with U.S. presidential front-runners, former Secretary of State Hillary Clinton and real estate mogul Donald Trump, all have addresses registered here.
Wilmington isn’t regarded as the safest town. Even in the daytime, few people come and go, and one woman who was out said she had been told not to speak to the media. While the head of CT’s public relations said that the corporation “plays an important role in helping companies legally conduct business,” he did not provide details on customer numbers and other specifics.
In a state with a total population of approximately 940,000 people, there are about 1,180,000 registered companies. The number of companies registered last year hit a record high of around 178,000--an average of 487 companies a day. The various types of business taxes and revenue fees exceeded $1 billion (about 108 billion yen), which accounts for around one-quarter of the state’s annual revenue.
Part of the reason businesses are flocking to the state is the tax incentives. While there is a state corporate income tax of 8.7% percent, the tax is exempt if no business is conducted in the state. There are no taxes on earnings from copyrights. Of the top 500 American companies, 66 percent have their headquarters registered here.
U.S. state taxes are determined by each state, and the practice of giving preferential treatment to companies as a strategy to attract business and investment has been spreading since the 19th century. Neither Wyoming nor Nevada has a state corporate income tax.
Delaware’s courts and state government provide full support for this kind of activity. It is easy to establish a company without submitting the beneficial owner’s information, and the paperwork to form a company is a mere two pages. All it takes is filling out the proposed company's name and address, a few other details and a fee of around $1,000. It takes as little as an hour.
Ann Chilton, who runs a corporate establishment agency, is from the second generation of her family to work on registration services. Her customers are from both the United States and elsewhere, such as Britain, Switzerland, Hong Kong, and Japan. Each monthly she acts as an agent for around 100 to 200 registrations.
“Even if you don’t know the beneficial owner, it does not mean that the overwhelming majority of these companies are doing something illegal. We request that they show us items such as their passport,” she said.
GROWING CRITICISM AND LEGISLATION
However, in the wake of the Panama Papers leak, criticism of states that are “easy on business” is growing.
In a ranking of financial secrecy done last year by the international NGO Tax Justice Network, the United States came in third after Switzerland and Hong Kong, and ranked higher than the Cayman Islands (5th) and Luxembourg (6th). Japan was 12th, ranking higher than Panama (13th).
The Washington Post asserted that “the United States is one of the world’s biggest tax havens,” and other American media quickly threw in their two cents' worth of criticism.
“There’s no need for an American to go to Panama. With a single telephone call from your kitchen, you can create a paper company,” said Tom Cardamone of the nonprofit organization Global Financial Integrity.
Starting next year, approximately 100 countries will use a system backed by the Organization for Economic Cooperation and Development to automatically exchange information about their citizens’ bank accounts.
However, this system will be based on the Common Reporting Standard, which the United States shuns. This is because it already makes an effort to get information from foreign banks about Americans’ accounts via the Foreign Account Tax Compliance Act (FATCA). But FATCA does not automatically exchange information reciprocally. Developing countries deeply resent that the information being requested from the United States is one-sided.
In April, five European countries, including Britain and France, agreed to set up a system to exchange information about the beneficial owners of companies. Possibly pushed into action by these developments, the Obama administration announced its own plan in May.
It is urging Congress to pass legislation that requires beneficial owners to present their information to the federal government when creating a company, as well as another bill that would make it possible to mutually exchange information about bank accounts.
A bill addressing the disclosure of beneficial owners has already been introduced in Congress, but due to opposition from Republicans, the possibility of it passing is unclear. A U.S. government official said that lobbyists who oppose the bill are “as strong as the National Rifle Association.”
The International Consortium of Investigative Journalists (ICIJ), the organization that revealed the Panama Papers, said that a federal prosecutor in the United States has started to look into a criminal investigation relating to the information in the documents. As the ICIJ released the names of 200,000 corporations and their shareholders in May, it is possible that parties connected to the United States will be revealed.
According to the international NGO Oxfam, the U.S. government loses $111 billion (12 trillion yen) every year due to multinational corporations evading taxes. Media reports have stated that the Panama Papers contain a company owned by an individual close to the Clintons, and it is likely that it will be discussed in the presidential election.
(Connor Cislo contributed to this story)