By Hugh Jackson
Last week’s USA Today story about companies being secretly set up in Nevada to buy condos and other property from Donald Trump was a reminder: Nevada’s infamously lax incorporation laws allow anyone — terrorists, sex traffickers, arms dealers, Putin, people who want something from a corrupt president, etc. — to set up a shell company, not only to hide one’s identity, but also to avoid taxes or move dirty money around.
The USA Today piece also indicated real estate sales, including at least $3.1 million in Las Vegas alone, may be the largest source of Trump’s income lately.
So who is earning favors from Trump by secretly enriching him?
The state of Nevada absolutely positively does not want (you) to know. That’s because the state collects a few hundred dollars every time a company is registered with the Secretary of State’s office, and secrecy is central to that revenue model. “Commercial recordings” accounted for $177 million in state general fund revenue in fiscal 2016. The Nevada Registered Agents Association estimates that as much as a staggering 80 percent of all businesses filings in Nevada represent out-of-state entities.
Last year 1,024 such companies surfaced as part of the Panama Papers, a massive document leak exposing how the corrupted rich the world over hide billions of dollars from tax collectors, law enforcement and the public. In one of the more intriguing Nevada connections, McClatchy News Service, a member of the media consortium that culled and reported the Panama Papers, reports that Nevada companies were used to stash and transfer money skimmed from Brazil’s state-owned oil company.
Thanks to its embrace of don’t-ask don’t-know business incorporation laws, Nevada found itself provided with that commodity so cherished by politicians and civic leaders — worldwide publicity. Just not in a nice way.
And so a reasonable person might ask: Are any moves afoot to render Nevada a little less sleazy?
The short answer is no.
The “no authority” state
Senate Bill 41 in the current legislature does broaden the Nevada secretary of state’s authority to investigate companies registered in Nevada. The bill allows the secretary of state to examine records held by registered agents as the SOS “deems necessary or appropriate to determine” whether state laws have been violated. Currently, the SOS can only examine records and seek ownership information if there is “reason to believe” there’s been a violation — that is, only if law enforcement asks the office to get the info. So the new language seems to give the SOS office more leeway to nose around.
But it turns out that SB41, which passed the Senate unanimously and is now in the Assembly, does nothing more than restore language stripped from the books in 2015. Two years ago legislators “softened” the law, according to Deputy SOS Scott Anderson as quoted in the minutes of a February Senate Judiciary Committee hearing. “This posed particular difficulties with respect to Mossack Fonseca and the Panama Papers,” Anderson said.
Mossack Fonseca is the Panamanian law firm from which the Panama Papers were leaked, and whose affiliate created many of those Nevada companies listed in the leaked documents. Later in that February hearing, according to the minutes, committee chair Sen. Tick Segerblom asked if SB41 addresses the “Panama Papers issue.”
“Yes,” Anderson replied. But reiterating a fact McClatchy reports repeatedly when Nevada comes up in its Panama Papers coverage, Anderson added that the SOS “has no authority over the conduct of a business entity.”
At which point the minutes show exactly zero senators suggested that, given the notoriety heaped on Nevada by the Panama Papers, the state should rethink its internationally infamous incorporation laws. In fact, most of the hearing was devoted not to fallout from the Panama Papers, but to a provision dealing with companies seeking film tax credits.
In other words, Nevada’s legislative response to its ignominious role in the Panama Papers is to return to the same pre-2015 regulatory framework that over so many decades so successfully established the state as an attractive secret conduit for sketchy international money.
Nevada’s cavalier response is predictable. As Segerblom put it shortly after the Panama Papers story broke last summer, Nevada’s laws are good business for the state. “We are known as the Delaware of the West,” Segerblom told the Review-Journal. “We don’t want to make changes and shoot ourselves in the foot unless other states make the same changes. We worked hard on our laws and I’m proud of what we’ve been able to accomplish.”
Others have harsher opinions about the Shell Companies-R-Us policies practiced in Nevada, Delaware and Wyoming –the three states that are far ahead in the race to see which U.S. jurisdiction can most closely emulate the ethical standards of a Swiss deposit box.
“Terrorists, organized crime groups, and pariah states need access to the international banking system,” Dennis Lormel, a former chief of the FBI’s Terrorist Financing Operations Section told Vice in a story about how easy it is to set up shell firms in Delaware and Nevada. “Shell firms are how they get it.”
Shell firms also provide cover for venality and corruption of a more banal, albeit not less harmful, variety, as when a pair of Texas attorneys set up sham Nevada companies to bilk senior citizens around the world out of $127 million in an investment scam.
The qualm-free state
Relatively small populations in Delaware, Wyoming, and Nevada mean that it is easier for the registered agent industry to wield power over state officials and policy. At least that’s the contention of the International Financial Action Task Force, which attempts to develop standards to combat money-laundering, the financing of terrorism and the like.
The Tax Justice Center, in a report on financial secrecy, contends that small states lack “strong democratic counterweights” – an explanation that seems reasonable to apply to Nevada, where the legislature only meets regularly for a few months every other year.
Nevada and Wyoming also share a western states “leave-me-alone” culture and a general notion that somebody’s business is nobody’s business.
Shell companies create few if any jobs in Nevada, but they pay business fee revenues that pump up the state’s general fund.
All that helps explain why Nevada isn’t likely to adopt ethical qualms about shell companies owned by people Nevada doesn’t know for reasons Nevada doesn’t want to know.
And maybe most importantly, no one with any influence has any direct financial gain in shutting down Nevada’s shell game. No business or industry would profit if Nevada were no longer a safe haven for ill-gotten gains the world over, so why would legislators bother to even think about it? There’s an ethical case to be made for demanding Nevada obtain ownership information about companies formed in Nevada. But there’s no money in it.
Meantime, who are the people, corporations, or nations hiding behind Nevada law to secretly line Trump’s pockets, possibly in the hope of shaping Trump policy? That would be a fine thing to know. Instead, we know this: If and when those owners are revealed, it will be despite the state of Nevada, not because of it.
Hugh Jackson is the founder and blogger at Gleaner 2.0, formerly (and still) Las Vegas Gleaner. He is also a U.S. History instructor at UNLV. Hugh was a cohost and political commentator for The Agenda on News 3 Las Vegas (2011-2014), and a senior editor at, and then columnist for, Las Vegas CityLife.