RECOMMENDATION 23

Part: 
Three
Chapter: 
2

State and Local prosecutors should enforce existing corporate laws to prevent the formation, use and abuse of shell corporations which serve as shelters for producers and distributors of obscene material.

Producers and distributors of obscene material often use multiple corporate entities as a means of concealing the true ownership or nature of their businesses.[253] They typically create layers of corporations to insulate their identities from a claim of actual ownership. Separate corporations may be formed to perform the different operations of a single bookstore. Separate corporations may be formed to control the sale of magazines, operate the bookstore, construct peep show booths, collect coins from peep show booths, and to repair the same booths.[254]

The articles of incorporation and other documents may list as incorporators, shareholders or officers the names of mere employees or even strangers. The names may be on the documents without the named person's knowledge or consent.[255] Some producers and distributors may rely on law enforcement knowledge of such practices to argue they are not the true owners even though listed as such.

Law enforcement officers face difficult burdens in identifying and bringing charges against or collecting taxes from the true owners who hide behind these shell corporations. Often they can locate only low level employees who may be unfamiliar with the identity of the persons who actually own or control the operation of the business.[256]

State laws governing the formation of corporations should be enforced fully to permit the identification of those persons managing and financing the obscenity industry. Corporate charters should be revoked when fraud is proven and the assets seized when permitted.

Notes

  1. New York Hearing, Vol. II, Wiliiam Johnson, p. 82.
  2. Id.
  3. Id.
  4. Id.