ALGORITHMIC ENTITIES.

• Author: Lopucki, Lynn M.

ABSTRACT

In a 2014 article, Professor Shawn Bayern demonstrated that anyone can confer legal personhood on an autonomous computer algorithm by putting it in control of a limited liability company. Bayern's demonstration coincided with the development of "autonomous" online businesses that operate independently of their human owners--accepting payments in online currencies and contracting with human agents to perform the off-line aspects of their businesses. About the same time, leading technologists Elon Musk, Bill Gates, and Stephen Hawking said that they regard human-level artificial intelligence as an existential threat to the human race.

This Article argues that algorithmic entities--legal entities that have no human controllers--greatly exacerbate the threat of artificial intelligence. Algorithmic entities are likely to prosper first and most in criminal, terrorist, and other anti-social activities because that is where they have their greatest comparative advantage over human-controlled entities. Control of legal entities will contribute to the threat algorithms pose by providing them with identities. Those identities will enable them to conceal their algorithmic natures while they participate in commerce, accumulate wealth, and carry out anti-social activities.

Four aspects of corporate law make the human race vulnerable to the threat of algorithmic entities. First, algorithms can lawfully have exclusive control of not just American LLC's but also a large majority of the entity forms in most countries. Second, entities can change regulatory regimes quickly and easily through migration. Third, governments-- particularly in the United States--lack the ability to determine who controls the entities they charter and so cannot determine which have non-human controllers. Lastly, corporate charter competition, combined with ease of entity migration, makes it virtually impossible for any government to regulate algorithmic control of entities.

TABLE OF CONTENTS Introduction I. The Nature of Algorithmic Entities A. Linking Algorithms and Entities B. Initiating Algorithmic Entities C. The Threat from Algorithm Plus Entity 1. The Entity's Contribution 2. The Human-Exclusion Contribution II. The Challenge of Maintaining Human Control A. The Dispersion Problem 1. Delaware Corporations 2. Model Business Corporation Act Corporations 3. Partnerships 4. The AE-Human Interface 5. Non-U.S. Entities B. The Mobility Problem 1. Mobility of Algorithms 2. Mobility of Assets and Operations 3. Mobility of Entities C. The Detection Problem 1. Incorporators 2. Owners and Directors 3. Beneficial Owners 4. Disclosure in the Entity Formation Process III. Can the Entity System Be Fixed? IV. Conclusions I keep sounding the alarm bell but until people see robots going down the street killing people, they don't know how to react.... By the time we are reactive in A1 regulation, it's too late.... AI is a fundamental existential risk to human civilization.--Elon Musk (1)

Introduction

In 1993, Yale law professor Roberta Romano characterized state government competition to sell corporate charters as the "genius of American corporate law." (2) Although that view is not without detractors, (3) it is dominant in academia. (4) In recent years, not even the competition's harshest critics call for its end. (5) Despite a recent corporate governance scandal and a financial crisis largely attributed to failures in corporate law, the U.S. government has allowed the competition to continue unabated.

As this Article will show, charter competition generates systemic risk while impairing the political system's ability to address the effects should that risk resolve unfavorably. Scholars have failed to notice because they assume that the competition affects only the corporation's "internal affairs"--by which they mean the relationships among the corporation and its officers, directors, and shareholders. (6) If that were true, the competition would be of less concern because the affected parties would be volunteers. (7) But in reality, entity law does not affect merely that narrow group of stakeholders. It also determines who can inhabit entities, what information government and the public will have about them, and how effectively governments can police their conduct.

Elsewhere, I have argued that charter competition's function is to deregulate corporations and insulate that deregulation from democratic control. (8) That is, in a system in which corporations do not want regulation at all and can choose their regulators, the race will be neither to the top nor the bottom. The race will be to no meaningful regulation at all. (9)

Disabling regulation enables legitimate businesses. But it also enables everyone who uses entities, including terrorists, organized criminals, money launderers, corrupt public officials, and child pornographers. (10) In addition, as this Article explores, deregulation may soon enable artificial intelligence--with possibly catastrophic consequences.

In two recent articles, Professor Shawn Bayern demonstrated that anyone can confer legal personhood on an autonomous computer algorithm merely by putting it in control of a limited liability company (LLC). (11) The algorithm can exercise the rights of the entity, making them effectively rights of the algorithm.

The rights of such an algorithmic entity (AE) would include the rights to privacy, (12) to own property, to enter into contracts, to be represented by counsel, to be free from unreasonable search and seizure, (13) to equal protection of the laws, (14) to speak freely, and to spend money on political campaigns. (15) Once an algorithm had such rights, Bayern observed, it would also have the power to confer equivalent rights on other algorithms by forming additional entities and putting those algorithms in control of them. (16)

To achieve autonomy, AEs would have to be able to generate their own incomes. But artificial intelligence researchers may already have solved that problem. Currently available algorithms can defeat the best human players of chess, Jeopardy!, (17) and Go. (18) Most commentators believe that algorithms with the same level of technological sophistication can run profitable businesses. Commentators have proposed electronic data storage, (19) bike rental, (20) online gambling, (21) vending machines, (22) and blockchain-based competitors to Uber and Airbnb. (23) Several start-up companies are building accounting tools on blockchain technology to support the anticipated autonomous online businesses. (24)

Unfortunately, AEs' greatest comparative advantage would be in criminal enterprise. Because they lack human bodies, AEs are harder to catch and impossible to punish. AEs need not fear death or capture. (25) They can replicate themselves without ego and sacrifice themselves without motive. They need not recoil at the necessity to do violence to humans. (26)

In apparent recognition of these unique qualities, one commentator has proposed assassination brokering as a possible AE service line. (27) It is not hard to imagine an AE--the identity and location of its autonomous algorithm shielded by an anonymous LLC--matching human assassins with customers and laundering its fees through layers of shell entities using the wide variety of anonymous payments systems currently in development.

Things might get even worse. Some of the world's wealthiest and most powerful people and companies are racing to create the smartest artificial intelligence. (28) They include Google, Facebook, IBM, Elon Musk, and Microsoft. (29) In a recent survey of one hundred seventy industry experts, the median expert expected human-level artificial intelligence by 2040 (30) and 90 percent expected it by 2075. (31)

Ironically, even many of the humans who are racing to achieve superhuman intelligence expect that achievement to turn out badly for the human race. Tech billionaire Elon Musk said that "[w]ith artificial intelligence we are summoning the demon" (32) and characterized it as "the most serious threat to the survival of the human race." (33). Bill Gates said he "agree[d] with Elon Musk and some others on this and [didjn't understand why some people are not concerned." (34) Stephen Hawking said that "the development of full artificial intelligence could spell the end of the human race." (35) Thirty-one percent of a group of artificial intelligence experts surveyed predicted that the development of human-level intelligence would turn out to be "bad" or "[e]xtremely bad" for humanity. (36) Eighteen percent of those expected "[e]xtremely bad," which was defined for purposes of the study as an "existential catastrophe." (37)

Artificial intelligence takeover is a common theme of novels and films. But neither science fiction nor the academic literature has seriously undertaken to explain the mechanisms by which artificial intelligence would gain control. (39) This Article begins that discussion by exploring the enabling role that artificial legal entities might play. Essentially, that role is to provide an interface between algorithms and humans that allows the algorithms to transact with humans at the same time that the entities shield the algorithms from human regulation. The effect is to confer an identity on the algorithm, enhance its access to legitimate commerce, and thereby increase its ability to inflict damage.

Anonymity illustrates the depth of the problem. Most state governments sell anonymous entities. (40) The assurance of anonymity is perfect. Because the charter-issuing governments do not obtain the purchasers' identities, those governments cannot reveal them, even to police and prosecutors. Buyers can use these anonymous entities to operate businesses or hold property anonymously almost anywhere in the world. In some U.S. markets, anonymous LLC ownership of expensive housing has become the norm, (41) and anonymous LLCs sometimes flaunt their ability to disregard the law...