Senate Bill To Curb Misuse Of US Companies

by Glen Shapiro, LawAndTax-News.com, New York

17 March 2009

Senator Carl Levin, who has campaigned tirelessly against the perceived ills of offshore secrecy, has turned his legislative attention on perhaps the largest 'secrecy haven' of them all: the United States.

Alongside Missouri Democrat Claire McCaskill and Iowa Republican Chuck Grassley, Levin has introduced the Incorporation Transparency and Law Enforcement Assistance Act, which aims to help enforcers of the law stop US companies being used for a variety of crimes and misdemeanours such as money laundering, tax evasion and terrorist funding.

According to the Senators, nearly two million corporations and limited liability companies are formed within the United states each year, but in many cases US states form these corporations without asking for the identity of the corporation’s beneficial owners, and this can make life difficult for law enforcement agencies when investigating allegations of financial and other crimes.

The bill would require US states to obtain beneficial ownership information for the corporations formed under their laws and to provide access to this information to law enforcement bodies upon receipt of a subpoena or summons.

Levin introduced a similar bill last year, that time co-sponsored by President Obama when he was a member of the Senate and sat on the Permanent Subcommittee on Investigations, which Levin chairs.

“For too long, criminals have misused US corporations to hide illicit activity, including money laundering and tax fraud,” said Levin.

“Websites that offer incorporation services worldwide are touting US corporate secrecy and essentially inviting wrongdoers to set up shop here in America. Law enforcement battling corporate misconduct too often can’t find out who is behind the companies they are investigating. Our bill would clamp down on corporate misconduct by requiring states to get the names of the persons forming private corporations within US borders," he added.

The subcommittee has been pursuing this issue since 2000, when the Government Accountability Office conducted an investigation, at the Subcommittee’s request, into an individual who set up over 2,000 Delaware shell companies and moved USD1.4bn through company bank accounts.

In July 2006, the Financial Action Task Force (FATF), which is usually more associated with its efforts to ensure that adequate anti-money laundering laws are in place in various offshore jurisdictions, criticized the United states for failing to comply with a FATF standard requiring beneficial ownership information to be obtained. It urged the United states to correct this deficiency by July 2008.

“The more transparency, the better for keeping business above board and accountable and for building public confidence in the marketplace,” said Grassley.

“This legislation makes registration of a corporation meaningful in that the public can know who is running a corporation. Right now, that’s not the case," he added.

The Incorporation Transparency and Law Enforcement Assistance Act would:

• Require the states to obtain a list of the beneficial owners of each corporation or limited liability company (LLC) formed under their laws, ensure this information is updated annually, and provide the information to civil or criminal law enforcement upon receipt of a subpoena or summons.
• Require corporations and LLCs with non-US beneficial owners to provide a certification from an in-state formation agent that the agent has verified the identity of those owners.
• Establish civil and criminal penalties under federal law for persons who knowingly provide false beneficial ownership information or intentionally fail to provide required beneficial ownership information to a state.
• Provide exemptions for certain corporations, including publicly traded corporations and the corporations and LLCs they form, since the Securities and Exchange Commission already oversees them; and corporations which a state has determined, with concurrence from the Homeland Security and Justice Departments, should be exempt because requiring beneficial ownership information from them would not serve the public interest or assist law enforcement.
• Authorize states to use an existing DHS grant program, and authorize DHS to use already appropriated funds, to meet the requirements of this Act.
• Clarify that nothing in the Act authorizes DHS to withhold funds from a state for failing to comply with the beneficial ownership requirements.
• Require a GAO report by 2013 identifying which states are not in compliance so that a future Congress can determine at that time what steps to take.
• Give the states until October 2012 to require beneficial ownership information for the corporations and LLCs formed under their laws.
• Require the Treasury Secretary to issue a rule requiring formation agents to establish anti-money laundering programs to ensure they are not forming US corporations or other entities for criminals or other suspect persons.
• Require the GAO to complete a study of state beneficial ownership information requirements for in-state partnerships and trusts.

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