What is the rub?
Wyoming has received a significant amount of attention from Washington and the national press alleging the state has become a safe haven for companies specializing in money laundering, embezzling and elicit activities. According to Deputy Secretary of State Patricia O’Brien Arp, the same regulations that make Wyoming a business-friendly state also leave it susceptible to fraud. New laws intended to clean out many of the illegal activities were enacted in 2007 and 2008, but the Secretary of State’s Office says evolving criminals and schemes require updated enforcement statutes.
Both bills are sponsored by the Joint Corporations, Elections and Political Subdivisions Interim Committee and were created at the behest of Secretary of State Max Maxfield’s office. Following testimony from Maxfield and representatives of Wyoming’s business community last summer, the Corporations Committee voted unanimously to sponsor the bills for introduction at the upcoming Legislative Budget Session.
What they would do:
Senate File 3 would allow the Secretary of State’s office new powers to issue “cease and desist” orders to persons or entities who register companies using knowingly false or fraudulent information. The bill also requires out of state or foreign limited liability companies to employ a registered agent with a physical presence in Wyoming or face forfeiture of their franchise. Individuals and companies are allowed a process of appeal upon notification of complaints.
Senate File 4 sets a timeline with a sliding-fee scale by which commercial registered agents (those acting on behalf of 10 or more companies) must re-register with the state. Commercial agents who do not re-register by January 1 face increasing filing fees and the eventual revocation of their respective license and those of the companies they represent.
What say the supporters?
According to Maxfield, combating illicit foreign businesses operating under the shield of Wyoming’s corporate regulations has been a priority of his since taking office in 2007. According to Deputy Secretary of State Arp, outside pressure and media scrutiny were not a catalyst for the legislation, but a resource in helping to draw attention to the problem.
According to Corporations Committee co-Chair and State Senator Cale Case, R-Fremont, the proposed legislation addresses legitimate concerns of abuse of Wyoming’s laws. Case also stated that the representatives of legitimate commercial registered agent companies felt “OK” with the proposed regulations.
Corporations Committee co-chair Rep. Peter Illoway, R-Laramie, had little in the way of opinion to offer on the issue, basically saying the bills were accepted on the recommendation of the Secretary of State’s office.
What say the opposition?
There is not a whole lot of noise coming from parties opposed to the bills. Money launderers, embezzlers and extortionists traditionally operate behind the scenes and generally don’t take a public role in lobbying for themselves or their illegitimate business interests.
But there were concerns, or at least interest, from the state’s legitimate registered agents as to how these bills may affect them. Cheyenne attorney Scott Meier, himself a registered agent for several companies, was called to testify before the Corporations Committee as to what effect the law may have. “I didn’t have any problems with it because we do background on our clients to make sure there aren’t any problems,” said Meier. “It may affect some of the fly-by-night businesses out there. But I don’t think this is going to impede the way legitimate businesses operate.”
What say us?
Representatives of the Secretary of State’s Office spent several hours with this reporter presenting their reasons for pursuing these bills. The presentation included the same power-point presentation shown to legislators on the Corporations Committee. The resulting impressions are twofold:
First: there are some extremely crafty and creative people devoted to setting up businesses that operate in the grey areas of the law.
Second: the Secretary of State’s Office is exceedingly sensitive to being perceived as anti-business.
Wyoming’s reputation as a friendly host to businesses and entrepreneurs is rooted in its history. The state was the first to recognize limited liability companies (LLCs). Wyoming boasts some of the nation’s most flexible business entity laws, enforces minimal filing requirements and fees, and of course, has no state income tax. According to the Secretary of State’s figures, roughly 60 percent of the businesses that file with its office represent both “mom and pop” and professional services (doctors, lawyers, CPAs, etc.) companies. According to Arp, these businesses present zero issues as they are all local and have real people standing behind them.
Where the licensing structure gets hazy is with the remaining 40 percent. The vast majority, as noted by Arp, represent reliable companies in Wyoming and beyond. There are, however, examples of “shell companies” being set up as credible businesses under Wyoming law, with the sole intention of defrauding investors. “It’s been a really difficult thing to press against fraud without hurting legitimate businesses,” said Arp.
According to Karen Wheeler, Director of Compliance for the Secretary of State’s Office, the majority of the illegitimate companies are being represented by a small number of commercial registered agents in Wyoming. Under previous laws, tracking down these registered agents or the companies they act for would often lead investigators to a P.O. Box or a “virtual office” manned only by a receptionist responsible for forwarding mail. Because of loopholes in registered agent accountability statutes, fraud victims and investigators were increasingly hitting dead-ends while trying to track the root sources of criminal entities.
It appears these bills ride the delicate fence line between Wyoming being open for business versus open for fraud. “It’s good if the Secretary of State’s Office doesn’t have too big of a hammer,” noted Arp. However, in this case the law goes only far enough to inhibit illegitimate activities without hindering legitimate, free-market enterprise.