Why Delaware Exists

Delaware owns the proud distinction of being the First State. However, it appears that, these days, Delaware exists to take advantage of all the other states. Without its major industry, it would not be a very prosperous state. Delaware exists to hide money. It has been reported that there are a million companies registered in Delaware. While that number is up for dispute, there are at least hundreds of thousands of companies in Delaware, compared to only 900 thousand residents. 

Transparency International has singled out Delaware for special status as a tax haven. It is clearly the biggest tax haven in the United States. Delaware joins Nevada and Wyoming as places to form a shell corporation to hide money. (Learn more about Transparancy International and why Donald Trump may not want to divulge his tax returns, as you read on.)

It is said that hiding money is the business of Delaware, contributing a quarter of its state revenue. According to William Black,  professor of Economics and the Law at the University of Missouri and Kentucky:

This is Delaware’s industry. They sell corporate leaders protection from compliance from fiduciary obligations and the provisions of law like anti-money laundering statutes.

Flag of Delaware

However, there is more to Delaware's business of hiding money. In reality, Delaware is just a franchise:

However, for James Henry, a senior fellow with the Columbia University Center on Sustainable Investment, Transparency International’s singling out of Delaware for “social sanction” misses the mark.“This comparative analysis that just singles out an individual tax haven jurisdiction like Delaware is misleading,” according to Henry. “Sophisticated tax dodging never just relies on one jurisdiction. This is a global industry that stitches these sophisticated schemes together across multiple jurisdictions using banks, law and accounting firms around the world.”
We know that London is the largest tax haven in the world, and London is the center for the hiding of wealth:

...London sits at the centre of a web of satellite jurisdictions. It is the most transparent of the jurisdictions in the index, but its importance in global offshore finance means that the secrecy it does provide has the potential to do more damage than, for example, small island havens which are less transparent but play a smaller role in global offshore finance.
London also uses crown colonies and former crown colonies like the Cayman Islands to funnel money that seeks anonymity. While it is difficult to tie the Cayman Islands with Delaware, at least we know their limited partnerships are both based on UK law:

Although both Cayman Islands and Delaware partnership laws trace their roots to the British Partnership Act of 1890, which was fundamentally premised on the right of contract between parties, they differ significantly in some respects. For example, the Delaware Limited Partnership Law (DRULPA) often thoroughly enumerates the rights and remedies associated with its provisions, while the Cayman Islands Exempted Limited Partnership Law (EPL) presumes that, where the statute is silent, the agreement will control. 
Delaware has garnered a dubious distinction. Its 1 percent captured more income compared to the 99 percent than any other state. That is predictable based on that financializalism that makes up such a large portion of Delaware's tax base. Delaware's 1 percent captured 301.2 percent of income increases from 2009 through 2012. That is close to obscene. Only one other state exceeded 250 percent of income gains from the 1 percent versus the 99 percent, and that was Florida at 259 percent. Wikipedia gives a basic definition of financialization or financialism:


Financialization is an increase in the size and importance of a country’s financial sector relative to its overall economy. Financialization has occurred as countries have shifted away from industrial capitalism. This impacts both the macroeconomy and the microeconomy by changing how financial markets are structured and operated and by influencing corporate behavior and economic policy.
Financialization takes many forms, from electronic trading, to derivatives and collateral backing it, to bets on interest rates, to repo and securities markets, to collecting money and hiding it onshore or offshore or behind secret laws. Delaware majors in the latter, collecting money to hide. Delaware also allows money to be poured, anonymously, into political campaigns. That makes this little state far more powerful than its size.

Transparancy International gets the word out about corruption in tax havens like Delaware, and has many local chapters in many nations. But the organization is also funded by the UK and by other governments and corporations. As Wikipedia  says in stunning fashion:

According to its 2012 Annual Report, it is funded by western governments (with almost €5 million from the UK government) and several multinational companies, including oil companies Exxon Mobil and Shell, hedge funds KKR and Wermuth Asset Management, Deloitte and Ernst & Young.[9] It does not however seem to affect their practices, as Exxon Mobil itself was ranked in 2008 as the least transparent of 42 major oil and gas firms.[10]
When you are funded by the very people who are hiding and facilitating the hiding of money, it all can't be good. After all, TI gave Hillary Clinton an integrity award in 2012. The site says that donations won't protect you,  and we hope that is the case. But even the Wikipedia article does not give TI the "pure" designation.

As for Delaware, the address of the Corporate Trust Center is 1209 North Orange, and it is home to Apple, Coca Cola, American Airlines and Walmart according to the Guardian.

Hillary Clinton and Donald Trump share the same corporate office! Perhaps President Trump does not want his tax returns to tell the American public exactly how much money is funneled through 1209.

But 378 of the 515 Trump companies are registered in Delaware. He made the astounding statement that he only expected to find a few companies registered in Delaware, but found 378. Seriously, if Donald Trump didn't know where his companies are registered, this could rise to the level of fake news. This was taken from the Guardian article:

He said he asked his staff to find out how many entities he has in Delaware. “I figured they’d maybe say two or three, right?” Trump said at a rally in Harrington, Delaware, on Friday. “We have 378 entities registered in the state of Delaware, meaning I pay you a lot of money, folks. I don’t feel at all guilty, OK?”
It is likely that the money he pays in the state of Delaware would pale in comparison to what he should pay in New York and elsewhere. In an age in which governments are strapped for revenue, when you take hours to wait at the DMV and for other services, you can know that corporations are withholding tax that could potentially streamline government services and improve your roads.

And the truth of the matter is that individuals can create shell companies in Delaware and our other tax dodge states too. It isn't just corporations that can get away with not paying taxes. This behavior, over time, does damage to the fabric of society. The people who cannot take advantage of this grow to resent this behavior.

That is likely why you see so many favorable popular stories about the royal family and American celebrities in the tabloids.  Donald Trump likely went on TV to enhance his celebrity, not just make money. That insulates these people from the anger of the populace over tax dodging. There is a disconnect between celebrities as popular icons and celebrities as the tax cheats and lords of tax cheat banking that they are.

The brazenness with which this money transfer is carried out is revealed by Bloomberg in a very disturbing article:

“To the extent non-U.S. persons are encouraged to come to the U.S. for what may be our own ‘tax haven’ characteristics, the U.S. government would likely take a dim view of any marketing suggesting that evading home country tax is a legal objective,” he said.
Rothschild says it takes “significant care” to ensure account holders’ assets are fully declared. The bank “adheres to the legal, regulatory, and tax rules wherever we operate,” said Rees, the Rothschild spokeswoman.
The article goes on to reveal that depositors from foreign countries do not want the information about their accounts divulged to their own countries! It is hard to square this contradiction. The Rothschild bank signed an agreement with the US government not to prosecute.  Now Nevada is growing as a tax cheat state, in addition to Delaware, Wyoming, South Dakota, and unwilling Florida.

Indeed, one argument that the Rothschilds are the wealthiest family in the world, is that they literally own the means to hide money, worldwide. Rothschild's private bank is in the business of hiding money.

I am not going to attempt to make that case against the Rothschilds. It is simply impossible to know. However, here is an example of the reach of just one Rothschild bank:

With a team of 3,300 talented financial services specialists on the ground in 40 countries across the world, we deliver a unique global perspective across four market-leading business divisions.
The disturbing agreement the Rothschilds entered with the US government to avoid prosecution and skirt OECD laws is a setback for legitimate governments, worldwide, to say the least. The US refuses to comply with OECD law.

One of the problems with this lawlessness couched in the protection of law is that it will only increase calls for a one world taxation system to track all this cheating down. That would result in a totalitarianism nobody should want.

This article was first published by me on Talkmarkets: http://www.talkmarkets.com/content/global-markets/why-delaware-exists?post=127955&uid=4798


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