Demand action to rein in LLC crimes

November 20, 2017

In response to a FOIA request made by DelCOG and the News Journal, Delaware Secretary of State Jeff Bullock claims to have tweaked internal policy to “rein in secretive limited liability companies.” Instead, these newly proposed regulatory and policy changes are unimpressive and disappointing in my opinion.

My proposed legislation (HB 57) simply mandates that registered agents “who serve as administrative liaisons between Delaware companies and the state” check client applicants for a Delaware LLC license against the U.S. Treasury Department’s Office of Foreign Asset Control (OFAC) list and report entities or persons that may be on that list at the time of registration. The DE State Department procedures do not stipulate that and, in fact, are less likely to identify any such ill-intended entities. Once these entities hire a registered agent to file their LLC license application, they enjoy a degree of separation from scrutiny since the agent now becomes the point of contact with the state.

Furthermore, reflecting on the authenticity or possible intentions of an entity should not take place after the fact and would seem impossible to track with a quarterly comparison of thousands of “existing clients” as opposed to a comparison at the moment of entry. State Department spokesperson and Deputy Secretary of State Kris Knight said that his office was “comfortable” with quarterly checks and that some registered agents check monthly. Asked how the Secretary of State was able to verify that, he replied: “Because they told us they were doing it.”

To blithely suggest that these new protocols would be effective in scrutinizing and comparing entities with a federal watch listing as stated by Mr. Knight suggests an over-confidence or false sense of security that there is an affordable and workable procedure to be implemented.

Mr. Knight states that “the revised procedure will require all commercial agents representing more than 50 business entities to conduct quarterly checks, comparing their lists of existing clients against a federal sanctions list updated by the Treasury Department’s Office of Foreign Asset Control… For smaller registered agents, the Delaware State Department will handle the checks, as it does now for about 45,000 business entities.” The reality, however, suggests otherwise. Kathleen Moore, owner of Delaware Registered Agents and Incorporators LLC, is not among them. The small-business owner in Newark said she never checks the federal sanctions list because “we did not have anything mandated that we had to look at that.” HB 57 would correct that oversight.

This attitude of speculative reassurance from the State Department is not acceptable and is challenged by some of the realities unmasked in the Department’s response to the FOIA requests. The existing protocols would seem to assure that the “registered agents” do not appear on the federal watch list but do not require those “agents” (who are paid handsome fees, in many cases, for their efforts) to scrutinize or compare LLC applicants against a readily and easily available federal watch list.

I remain firmly convinced that Delaware’s Department of State is not willing to challenge the status quo policies advocated and implemented by the corporate bar commission and other special interests. Without action, we will not be able to protect Delaware’s well-earned reputation as a safe and honest place to do business.

John Kowalko
State Representative
25th District