Anonymous Shell Companies, a Huge Problem in MN

Fraud facilitated by anonymous shell companies is a serious problem facing businesses here in Minnesota.

Internationally, corrupt officials establish shell companies as a conduit for bribes. Here in the U.S., this anonymity is used to disrupt local commerce in ways that impact small businesses like mine. Here are some examples:

Unscrupulous individuals use anonymous shell companies to set up fake businesses that underbid and win contracts they have no intention of fulfilling. They use these shell companies to submit fraudulent invoices or, if they do fulfill the contracts substandard supplies or services.

By the time the fraud comes to light, the companies, and the criminals behind the fraud, have disappeared. Meanwhile, the legitimate small business that competed for the contracts lose valuable business opportunities.

Another example – “patent trolls” – also use anonymous companies.  They use the shell companies to make false patent claims and threaten lawsuits against honest businesses that are trying to roll out something truly new. Smaller business rarely have the money to challenge the fraudulent claims. Others unwittingly pay unnecessary royalties or licensing fees to the fraudulent patent trolls.

Small businesses often purchase products and subcontract work to others; but problems arise if one of the intended partners or suppliers turns out to be an anonymously-owned shell company. The due diligence required to avoid these fraudulent schemes is costly.

Here in Minnesota just this year, authorities uncovered several schemes to defraud investors. These schemes make it that much harder for legitimate businesses to access the capital they need to grow.

Fortunately, there are some things we can do.

Perhaps the most critical step is to end the use of anonymous shell companies.  There are bills in congress that will end this abuse. Even in these divisive times, these bills have strong bipartisan support.

The bills are not complicated.  They propose a simple step: to require all companies to disclose who owns them, directly or beneficially.

It is a surprise, to many, that nowhere in this country is this required.  This common-sense measure will improve the integrity of supply chains, ensure more fair competition for contracting and limit the ability to blackmail small businesses over bogus licensing fees.

Small business owners have enough challenges to overcome. Our representatives and senators regularly pledge support for the small business community.  Here is an easy way to act on that pledge.  

Here in Minnesota, my fellow entrepreneurs and I are proud of our businesses and readily put our names on the bottom line.  We just ask that others play by the same set of rules.

The rules should favor honest business over anonymous- owned shell companies.

- Robert Scarlett, MSAMN member