Limited liability companies (LLCs) and financial crimes
| Pages | 7-18 |
| Published date | 02 January 2009 |
| DOI | https://doi.org/10.1108/13685200910922615 |
| Date | 02 January 2009 |
| Author | Benton E. Gup,Navin Beekarry |
| Subject Matter | Accounting & finance |
Limited liability companies
(LLCs) and financial crimes
Benton E. Gup
The University of Alabama, Tuscaloosa, Alabama, USA, and
Navin Beekarry
International Monetary Fund, Washington, DC, USA
Abstract
Purpose – The purpose of this paper is to provide an analysis of the concept of Limited Liability
Companies (LLCs) and the extent to which these present money laundering and financing of terrorism
(ML/FT) risks.
Design/methodology/approach – The paper examines the historical origins of LLCs and
compares the benefits derived from using LLCs as an instruments or vehicle for doing business as
opposed to the risks and vulnerabilities attached to them. In particular, the paper examines how LLCs
present risks and vulnerabilities for ML/FT risks, before assessing existing methodologies for
assessing such risks and vulnerabilities and their strengths and weaknesses.
Findings – It was found that existing frameworks used to assess risks attached to the use of LLCs
could be strengthened. Reference is made to the manner in which the USA has strengthened its
legislation in order to prevent the misuse of LLCs for criminal purposes.
Originality/value – The paper’s conclusions may be relevant for defining methodologies in
assessing the risks that LLCs constitute in different countries for ML/FT.
Keywords Money laundering,Crime, Organizational structures,United States of America
Paper type General review
LLCs and financial crimes: a great combination! What should we do
about it?
Limited liability companies – origins, characteristics and objectives
A limited liability company (LLC) is a form of business that offers its owners, who are
called “members,” limited liability from the company’s debts and obligations to
pass-through taxation. Their members can be individuals, corporations, other LLCs, or
foreign entities[1]. They also have other advantages. For example, Delaware requires
very limited information when a company is formed. They can be formed and operated
by agents or nominee incorporation services. A Google search of “Delaware company
formation,” revealed 240,000 þhits. Some of the sponsored links offered to form an
LLC on line for as little as $75 in 1 day (www.thedelawarecompany.com/).
LLCs have been in existence for a long time, dating back to the eighteenth and
nineteenth centuries when business entities were more concerned with business costs
rather than the liability of its members. The debate centered on efficiencies of
externalizing the costs of a firm’s activities rather than on agency costs. It was in the
1960s and 1970s that the importance of contract liability and, subsequently, tort
liability of its members, started to assume greater importance with the concept of legal
personality as the central issue of attention[2]. It became important for business
entrepreneurs to determine whether to conduct trade in their personal capacity or as a
legally incorporated entity, which would have a distinct legal personality separa te
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1368-5201.htm
LLCs and
financial crimes
7
Journal of Money Laundering Control
Vol. 12 No. 1, 2009
pp. 7-18
qEmerald Group Publishing Limited
1368-5201
DOI 10.1108/13685200910922615
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