The United States' Problem With Financial Secrecy

How It Undermines U.S. Foreign Policy

The headquarters of incorporation specialists Laughlin Associates in Carson City, Nevada, August 2011. Kelly Carr / REUTERS

The clients of the former arms dealer Viktor Bout spanned the globe. By shuttling weapons to warlords in Liberia and a dictator in Zaïre, among others, Bout became the most notorious gunrunner of the past quarter century. As the former State Department official Witney Schneidman put it, he was also the “personification of evil.” But although the Tajik-born arms trafficker dealt with clients from around the world, there was one place he chose to set up the shell companies he used to expand his business: the United States. (Bout was convicted of terrorism-related charges in 2011 and is now serving a 25-year sentence in Illinois.)

Washington has provided the world with some of the foremost tools for combating crime and grand corruption. Its Kleptocracy Asset Recovery Initiative, for instance, has frozen some $3 billion in ill-gotten wealth since 2010. Yet over the past decade, a handful of states—primarily Delaware, Nevada, and

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