Just like today, Delaware at the turn of the 20th century was not well known. The state maintained a small service sector and an even smaller industrial base. With no real natural resources or tourist attractions, the state has scratched its head in trying to squeeze business from those traveling between New York and Washington.
But just over a century ago, in the early 1910s, Delaware saw an opportunity.
In neighboring New Jersey, so-Gov. Woodrow Wilson took office pledging to clean up the New Jersey corporate sector, which had turned the Garden State into a premier destination for businesses across the country looking for protections and secrets they didn’t. could find elsewhere. (Others have called New Jersey “traitorous statesucking up corporate taxes and fees that other states suddenly lost on.) Driven by a reformist bent and anxious about who might profit from loose New Jersey regulations, Wilson cracked down, forcing backward regulations to Corporate lobbyists decried Wilson’s moves, but their calls were ignored.
Just like today, Delaware at the turn of the 20th century was not well known. The state maintained a small service sector and an even smaller industrial base. With no real natural resources or tourist attractions, the state has scratched its head in trying to squeeze business from those traveling between New York and Washington.
But just over a century ago, in the early 1910s, Delaware saw an opportunity.
In neighboring New Jersey, so-Gov. Woodrow Wilson took office pledging to clean up the New Jersey corporate sector, which had turned the Garden State into a premier destination for businesses across the country looking for protections and secrets they didn’t. could find elsewhere. (Others have called New Jersey “traitorous statesucking up corporate taxes and fees that other states suddenly lost on.) Driven by a reformist bent and anxious about who might profit from loose New Jersey regulations, Wilson cracked down, forcing backward regulations to Corporate lobbyists decried Wilson’s moves, but their calls were ignored.
This article is adapted from American Kleptocracy: How the United States Created the World’s Largest Money Laundering Program by Casey Michel (St. Martin’s Press, 368 p., $ 29.99, November 2021).
Suddenly, those looking for lax corporate regulations had to look elsewhere and they didn’t have to look far. A few miles south was Delaware, ready to capitalize on Wilson’s decision and wrest New Jersey’s pro-business crown. “Delaware”, read an article in the American Law Review of the time, was “gangrened with envy at the sight of New Jersey truckers, sandblasters, clam hunters and mosquito hunters putting all the country’s money in their coffers.” And the state was “determined to put her little, tiny, sweet, round, baby hand in the bag of sweet things before she did.” [was] too late.”
Delaware was perfectly positioned to take advantage of New Jersey’s decision. The state enjoyed many of the same geographic advantages offered by New Jersey, located between the financial and political capitals of the United States: New York and Washington. (“Who wants to fly to Alaska [for corporate litigation]?” a journalist wrote, highlighting Delaware’s prime location.) And while Wilson has scared corporate clients and pro-business interests with his pro-regulatory reforms, Delaware has done the opposite. As Delaware Governor Pete du Pont regretted, say later, “You can’t trust the [Delaware] the legislature to do a lot of things, but you can count on it to keep corporate law up to date.
Delaware’s actions have effectively opened the door for businesses to locate as easily as possible in the state, luring them in with new pro-business laws and protections. In addition to the policies it had already borrowed from New Jersey and implemented, including the ability to start a business even if it had never set foot in the state, Delaware quickly began to allow businesses. to reimburse directors for damages incurred if and when disgruntled shareholders sue. (invaluable protections as the United States grew more and more contentious). The state also quickly began exempting corporations from state taxes, meaning that a new Delaware company’s only real connection to the state, or interaction with it, was when the documents have been deposited.
With these new measures in place, businesses began to race to Delaware. By the 1920s, his leadership position in the race to the bottom was all but assured, with state lawmakers focusing solely on making companies as happy as possible. Delaware, to steal a political science term, had effectively been “capture”: Beholden to its corporate regime and income from the business creation industry.
But there was also another benefit Delaware maintained: anonymity. And towards the end of the Cold War, the state began to market its “anonymous shell companies” to foreign officials, including increasingly prominent kleptocrats in their home countries, in order to protect their assets. These shell companies were in fact black boxes: they could not be traced to the foreign officials, increasingly rich in illicit wealth, who owned them, but these officials could still protect and control them. And Delaware offered these shell companies to whoever wanted one. Thanks to these anonymous front companies, the New York Times reported, Delaware officials have found “a way to make everyone rich” in the state, regardless of the source of the funds.
Viktor Bout was one of the main members of a long list of international crime lords who rushed to Delaware, building his operations with the anonymity provided by the state. A skinny Russian national of Tajik origin with a bushy mustache the size of a cut cigar, Bout built an arms smuggling empire amid the collapse of the Soviet Union. (For a taste of Bout’s murderous exploits, to verify the main character of actor Nicolas Cage in the 2005 film Lord of war, which was based on Bout.)
With clients and partners from Central America to Central Asia and warlords from sub-Saharan Africa to the Taliban, Bout was involved in almost all of the major illicit arms transfers that took place in the 1990s and early 2000s. Fighter jets and anti-aircraft weapons, machine guns and machetes: the proceeds did not matter . All that mattered was getting the goods to the waiting customers – and making sure those investigating him, including U.S. officials, never found out about the financial networks that facilitated his trafficking. weapons.
Nicknamed the “merchant of death,” Bout was ultimately picked up in Thailand in 2008 and remains housed in a Supermax Prison in Illinois, but not before it has splashed nation after nation with bullets and blood. And as subsequent court documents made clear, much of the butchery left in Bout’s wake is directly linked to anonymous shell companies, including two based in Delaware, right under the nose American officials who spent years trying to find him.
But Bout wasn’t the only globetrotting criminal looking to Delaware. Paul Manafort, the convicted (and now pardoned) former campaign chairman of former US President Donald Trump, used several Delaware shells as part of a scheme to hide payments from foreign customers. Timothy Durham, nicknamed the “Madoff from the Midwest”For defrauding thousands of older investors out of hundreds of millions of dollars, has centered its operations in Delaware. Romanian accountant named Kiss Laszlo– who once wrote a book (accurately) describing the United States as a tax haven – apparently got a little too familiar with his research and allegedly used a series of Delaware shell companies to help hide millions and millions of dollars. millions of dollars.
The examples are too numerous to count. International criminals and crooked foreign officials, gun dealers and rhino poachers, human traffickers and internal traders, all have benefited from Delaware’s friendly business environment. And these are just the examples that we know of. Like one lawyer noted in 2017, “It is not entirely impossible that ISIS is operating companies and trust funds domiciled in Delaware”.
All of this leads to a clear and inescapable conclusion: As the most business-friendly state in the union – and the biggest source of anonymous shell companies the world has ever seen – Delaware has extracted blood from corporate stones. .
Much of this was a direct consequence of the policies implemented a century ago – and, in that sense, was never based on necessarily transforming Delaware into an offshore paradise or on the creation of the tools whose kleptocrats and foreign crooks would eventually need it. But by the time the postcolonial and post-Soviet regimes began to open up, the state’s relocation infrastructure was already in place. And by the time the geysers of illicit wealth began to spew out into the world in the late 20th century, Delaware officials were perfectly happy to share the outsourcing and anonymous services already in place, no matter who ended up in. take advantage.
And there’s little evidence that Delaware ever cared about who took advantage anyway. As one of the official Delaware websites States, “Delaware is not a haven of secrecy, nor is any other state or the United States itself,” which is telling, given that the United States itself is a haven of secrecy. The claim would be laughable if the state’s anonymous shell companies hadn’t been directly linked to the deaths of hundreds of thousands, the swindling of billions of dollars, and the plundering of entire nations.
Just as Delaware once overthrew New Jersey, other states that watch Delaware rake in billions in corporate fees have started proposing their own financial secrecy reforms. These other states want to attract some of the capital – clean, dirty, whatever – that Delaware has mopped up. And while they haven’t stolen the crown from Delaware yet, they’ve started carving out their own empires of financial anonymity.
