Wyoming’s legislature will be entering uncharted territory when it votes on pending legislation aimed increase the regulation of its business licensing industry.
The “Equal Rights” state is among the friendliest in the nation in allowing individuals to establish companies with a minimum amount of government oversight. This status has put Wyoming in the crosshairs of Washington D.C. politicians and journalists anxious to typecast the state as a safe haven for businesses operating as tax shelters, money laundering operations or fronts for embezzling rings.
Wyoming rates 21st in business friendliness, according to a 2011 CNBC study, and there is concern that adding further layers of regulation could worsen this ranking.
According to Wyoming Secretary of State Max Maxfield, his office was approached by U.S. Senator Carl Levin (the Democratic chairman of the Senate Homeland Security Committee’s Permanent Subcommittee for Investigations) of Michigan in 2007 for support in drafting new federal legislation designed to increase government oversight of certain types of companies. Maxfield says Levin told him, “Wyoming was identified as one of the top three states being susceptible to money laundering.”
Existing federal laws related to money laundering have little effect on Wyoming business regulations because the federal laws primarily deal with personal banking transactions.
Maxfield, however, says he preferred state regulation to increased federal oversight. In 2008, legislators took the advice of Maxfield and passed bills designed to tie up the supposed loose ends of the state’s business licensing statutes. The new laws established criminal penalties for filing false information with the Secretary of State and tightened the regulations regarding registered agents of corporations.
Despite the new laws, the issue was thrown back on the doorstep of the Secretary of State’s office last year when a Reuters investigate report drew national attention by alleging that Wyoming rivaled “Cyprus and the Cayman Islands” as a haven for secretive businesses. The article spoke at length about the unique business regulation structures of Wyoming (and Nevada) that allow state businesses to act as registered agents for hundreds, and sometimes thousands of corporations. Wyoming law allows out of state and foreign business owners to incorporate within the state so long as they employ a registered agent with a physical presence in Wyoming to act on their behalf.
Maxfield took exception to the claims made in the Reuters article, calling them “misleading,” and noting that “it’s not unusual for one location being the registered agent for several corporations.”
“You have companies that do this for a living, that is their business,” said Karen Wheeler, director of the Compliance Division of the Secretary of State’s Office. Wheeler said that despite the media criticism, her office has no intention of interfering with the registered agents currently acting on behalf of multiple corporations.
However, when the Secretary of State’s Office proposed new bills designed to increase corporate regulations to the Joint Corporations, Elections and Political Subdivision Committee last summer, questions arose as to whether the move was a reaction to the criticism contained in the Reuters article or a necessary response to new problems.
After hearing testimony from Maxfield and members of the business community with ties to the issue, the Joint Committee voted unanimously to present two bills for introduction at the upcoming Legislative Budget Session. “The corporate community expressed some initial concern about the proposed laws, but were generally ok(sic) with them after the Joint Committee made some changes,” noted Committee co-Chair and State Senator Cale Case, R-Fremont, through email.
Scott Meier is a Cheyenne attorney whose firm acts as a registered agent for several companies and was asked to testify before the Committee as a representative of business interests. “I don’t know what the ultimate goal [of the bills] is,” said Meier. “There is a lot of confusion out there about what the Secretary of State’s powers are.”
Identified as Senate Files 3 and 4, the first bill would allow the Secretary of State’s office the right to issue “cease and desist” orders to corporations that filed with the state under false pretenses. Senate File 4 calls for an increase in the responsibilities of registered agents of corporations to maintain diligent records of the companies and their respective officers.
In a follow up interview to his Committee testimony, Maxfield was emphatic that the proposed bills were not born out of criticism by the media. “We’ve been working toward this for several years, which is well before that report came out.”
However, the Reuters report was certainly on the minds of those testifying and voting on the bills. “The two bills were proposed… after an article appeared criticizing Wyoming’s ‘faceless’ corporation laws,” wrote Case. Asked if the bills were in any part a reaction to the article, Case responded: “Sure some of it was… But I do think the committee was persuaded by some of the testimony regarding known felons and fraudulent operators.”
“It seemed like there was a lot of talk about (the articles) going on,” said Meier. “The timing does lead some people to think this was a hurried, knee-jerk reaction.”
Isolated incidents of money laundering, tax evasion and embezzlement have been discovered among the thousands of out-of-state companies incorporated within Wyoming but owned and operated by outside parties. The Reuters report, however, fell short of proving Wyoming’s regulatory business laws have led to an epidemic of companies operating solely for nefarious reasons.
In truth, Wyoming is inherently unique in its laws allowing incorporation and there is little precedent on how – or if – regulations need to be adjusted to accommodate its status as a friendly state for business licensing.