GAO Inquiry Into Corp Services NPRRA Record 12/13/2005 National Public Records Research Association Winter Newsletter Let the Record Reflect Government Accountability Office Inquiry By Darrell W. Pierce, General Counsel The NPRRA Board of Directors held its mid-year meeting during the week of October 3 and, as you will see from the other articles included in this issue, many issues were addressed and many exciting initiatives are underway. One of those issues was the ongoing inquiry by the Government Accountability Office into the practices and procedures of company service providers as the GAO seeks to determine what, if anything, might be done to prevent or discourage the use of America business organizations as a cover for terrorist or other criminal activity. The GAO is looking for a basic understanding of the service provider business and, apparently, for capabilities that might assist law enforcement efforts. NPRRA has been contacted, as have a number of NPRRA members, and we will cooperate. While there is no proposal from the GAO as yet, and NPRRA has not taken any position as to what form a proposal might take, as good corporate citizens we are all eager to cooperate. However, we would hope that any proposal would reflect a complete understanding of what our industry does and what it realistically can and cannot do. In general, while we remain open to creative ideas as to how we can help, NPRRA believes that the traditional means of regulating entity behavior, as opposed to entity formation, remains appropriate. NPRRA believes that an understanding of the role of registered agents as a sure (if even only legally if not actually) means of contacting a business entity rather than as a means of hiding ownership or other involvement will be critical to the formulation of a workable policy. NPRRA also believes that the GAO needs to appreciate the fact that company service providers do not track, and have not had the means to track, registered or beneficial ownership of business entities or other information that might be important someday in a criminal investigation. The following is a reproduction of questions the GAO actually posed to an NPRRA member. Other members have responding to virtually identical questions, so you may wish to familiarize yourself with them, especially if you are contacted by the GAO. State Incorporation Requirements (250242) Questions for Corporate Service Providers Background Please describe the services your company provides. Typically, how many corporations does your company help form in a year? How many of these are incorporated in [Delaware]? In other states? How many employees work on processing business incorporations? Approximately how many entities in [Delaware] receive services from your company in a year? How many entities from other jurisdictions (e.g., other states or countries) contract with your company for service in a year? Approximately what percentage of companies? registered agents are employees of the company versus firms that provide registered agent services? Information required to incorporate non-publicly traded businesses Please describe the process for forming a new corporation in [Delaware]. What documents are required? What are the different ways (e.g., in person, online, E-mail, by fax, etc.) an individual may submit the required documents? How long does this process typically take? What fees does your company typically charge for registered agent and company formation services? How do the incorporation and annual reporting processes in [Delaware] compare to other jurisdictions (e.g., other states or countries)? Generally, what information must be provided in articles of incorporation and annual reports? Does this information include names of corporate beneficial owners? What would be the benefits and costs of including beneficial ownership information on articles of incorporation or annual reports? What are other potential sources of beneficial ownership information? To what extent do information requirements differ for persons outside the U.S. seeking to form corporations inside the U.S.? To what extent does your company take steps to verify information provided in companies? articles of incorporation or annual reports? What are the impediments to verifying this information, if any? What would be the costs and benefits of requiring registered agents to verify this information? What would be the legal consequences for a company if it was found to have provided false or misleading information in its articles or annual reports? What would be the consequences for a third-party agent if it was found to have provided false or misleading business information? Does your company screen incorporation filings against the Office of Foreign Assets Control's Specially Designated National and Blocked Persons List? What are the impediments to screening this information, if any? Generally, what is the process for obtaining a Certificate of Good Standing or an Apostille? For what purposes do corporations use these documents? Registered agents How many registered agents and/or company service providers are there in [Delaware]? Are registered agents required to be registered with the state? Does [Delaware] otherwise regulate or oversee their operations? Does your company operate or provide services to companies incorporated in other states? If so, do these states? require registered agents to be registered with a state office? Does these states otherwise regulate or oversee operations of company service providers? In your opinion, what would be the impact of the state's introducing various regulatory requirements for the company services industry? How would your company be affected? Please describe the nature of the relationship between the [Delaware] Secretary of State's office and your company? Does your company typically attend the quarterly registered agent meetings with the Secretary of State? What is the purpose of these meetings? What topics are generally discussed? Availability of information To what extent is the information in articles of incorporation and/or annual reports available to the public and/or law enforcement officials? How often does your office receive requests for corporate information from law enforcement officials? What kind of information is typically requested? What information is the office typically able to provide? To what extent are information requests from law enforcement based on non-publicly traded corporations being used to conduct or facilitate criminal activities? Are you aware of any research examining potential links between incorporation requirements, the availability of beneficial ownership information, and corporation involvement in illicit activities, such as money laundering or terrorist financing? Miscellaneous What are your thoughts on conducting a survey of states to collect information on incorporation requirements and practices? Can you recommend other contacts or research that would be useful to us?? If you are contacted by the GAO and would like to find out about any recent developments, please contact NPRRA. We can put you in contact with others who have already responded. Again, NPRRA has not taken any position other than to cooperate. If a proposal regarding company service providers is made NPRRA will determine if and how it should react at that time. What's Your Issue? Remember that part of my responsibilities as NPRRA General Counsel is to be a resource for the membership. If you have an issue you would like to see addressed in this column, please contact me at DPierce@dykema.com. It will be my pleasure to help if I can.