Jay Clayton, Donald Trump's choice to head the SEC, is slated to appear before the Senate Banking Committee Thursday. In that hearing, he may be asked about some pointed questions about his personal holdings.
Clayton is already an unusual choice, given that he's slated to be a primary regulator of Wall Street while a chunk of his family income will continue to come from Goldman Sachs, where his wife Gretchen works. Although he will have to recuse himself from enforcement cases involving Goldman, he will not have to sit out of a broad range of other regulatory decisions that affect the company. This is already notable.
In Clayton's absurdly baroque Form 278 financial disclosure – if you want to feel like your financial life is meager and uncomplicated, take a look at this staggeringly long list of income sources for the former Sullivan and Cromwell mainstay – he lists, under "other assets and income," a series of entries involving a company called WMB Holdings.
WMB Holdings, he explains in a verbose and unhelpful endnote, is a Delaware-based entity that provides "business, financial, and representational services."
According to Clayton, WMB secures business licenses, files UCC forms, creates special purpose vehicles (you might remember these little financial Frankensteins from the Enron story), engages in "compliance support services," secures data storage and helps with "anti-counterfeiting services," among other things.
This sounds harmless enough. But WMB, and a company called CSC – with which it appears to have a connection – is a company of a very particular type, known well to white-collar investigators.
"It's a corporate formation company," says Jack Blum, an expert on white-collar crime and money laundering who is best known for his investigation of the BCCI scandal. "You call them up, and 20 minutes later you've got a Delaware corporation. I'm exaggerating, of course, but that's what they do."
These firms can be used to create chains of legal entities, sometimes ending in offshore accounts, that make tracing financial transactions difficult, if not impossible. "They can make the ownership of anything completely impenetrable," says Blum, speaking generally and not necessarily about Clayton's firm. "If you want to launder money, evade tax or hide assets from a spouse, you can do it."
Clayton's family seems to have a serious interest in this firm. He lists a series of family trusts containing WMB holdings, most producing high annual dividends.
If you add up each of the dividends – some of which are listed as generating over $1 million a year, while others are listed at $100,000-$1,000,000, etc. – the total annual value of these holdings comes out to over $4 million annually, at least.
The endnote claims Clayton has no beneficial interest or control in these holdings, but that his wife and/or children have a "beneficial interest."
Given that the company would appear to be subject to SEC oversight, it's worth asking the nature of his family's involvement with WMB, and moreover to learn more about what his attitude is toward such companies in general.
Clayton has pledged to divest from WMB when his wife has "directly held financial interests" in the company, but not where his wife or his children are "solely a beneficiary."
Public Citizen for a variety of reasons believes that WMB "may also be the parent of Corporation Service Co. (CSC)," another large business services firm with offices in "Delaware, Australia, France, Hong Kong, Singapore, Sweden, and the United Kingdom."
Among other things, WMB was for some time listed as the parent of a company called CSC Trust Co., now called Delaware Trust Co.
CSC Global claims 2,500 employees as well as 180,000 corporate customers, while also representing 10,000 law firms. The company appears to do more or less the same things that Clayton says WMB does, dealing with creating legal business entities, management of licenses, upkeep of filings, dealing with service of process, etc.
Interestingly, and to Blum's point, Clayton's disclosure does not list any interest in CSC. So although he gives some information about what appears to be a holding company with little to no public profile, the company that boasts of its connections to 180,000 corporations is not mentioned in the disclosure form.
Neither CSC nor Clayton have responded to requests for comment.
The real issue with companies like these is the vast array of tools they can offer big companies and high-net-worth individuals to complicate their financial profiles. The worst-case scenario is a string of shell companies that end in an opaque offshore haven.
"That's when the trail becomes impossible to follow," says Blum. Investigators who try to follow money into offshore banking havens have almost no hope of getting answers there, he says.
"You need a formal mutual legal request that may or may not be honored in the lifetime of the investigator," says Blum.
Interestingly, when Public Citizen ran the names of WMB and CSC through the Panama Papers database, they found nothing. But when they ran the address common to both companies – 2711 Centerville Rd., Wilmington – through the database, they found it connected with numerous firms whose agent was the infamous Mossack Fonseca, many of them offshore companies.
In its letter to the Senate Banking Committee, Public Citizen asked the Senate to ask Clayton what this means. Did either WMB or CSC do business with Mossack Fonseca? Have either of those companies provided services to Mossack Fonseca clients?
Even if WMB and CSC are completely above-board, it's a strange sort of investment for the top cop on the financial beat. It will be interesting to see if he sheds some light on his holdings when he's questioned this week.