Arizona regulators adopt new rules to combat business identity theft

The Arizona Corporation Commission is pursuing a series of changes to stop fraudsters from illegally taking over Arizona businesses.

When Arizonans start a business, they file paperwork formalizing the new company with the Corporation Commission.

Under current rules, they can also make changes to the business — including adding new owners — by filing articles of amendment. But, according to commission staff, that system is susceptible to fraud, because individuals are not required to provide identification when they file that paperwork.

"What the bad actors do is they add themselves to that business, and then they take over that business's credit rating, their reputation, and then they act poorly,” said Tanya Gibson, the Commission’s Corporations Division director.

Earlier this year, Axios Phoenix reported that scammers are using that lax system to steal money from Arizona residents by illegally creating LLCs — limited liability companies — in someone else’s name and using the new business to defraud that person.

Corporation Commission staff cited that article when asking the commission to adopt new rules requiring identification before a person files LLC documentation.

The commission voted unanimously to direct staff to create new rules requiring two forms of identification for in-person filings. It also voted to adopt another new rule that will require any LLC owner that has not filed documents with the commission for two years to respond to a notice sent by staff to confirm the LLC is active.

If the owner does not respond within 60 days, the commission will begin a process to dissolve the company.

“This is our reaction to bad actors in the community that have wreaked havoc on the lives of our citizens by committing fraud with LLCs and HOAs and political parties,” Corporation Commission Chairman Jim O’Connor said.

However, the new rules won’t immediately apply to filings made through the Corporation Commission website, because the antiquated system can't currently process identify verification, according to staff.

The commission is expected to require the identification requirement for digital filings when its new filing system goes live next year.

In addition to its own policy changes, the commission will also lobby state lawmakers to adopt new laws to combat fraud.

That includes passing laws to require in-state companies to incorporate with the commission before they start doing business in the state. The commission will also ask lawmakers to require business owners to submit a separate form when they start a business that includes the names of all people authorized to sign forms on the company’s behalf.