Bill to Combat U.S. Corporations with Hidden Owners Introduced

Sen. Carl Levin, D-Mich., chairman of the Permanent Subcommittee on Investigations, and Sen. Chuck Grassley, R-Iowa, ranking member of the Senate Judiciary Committee, this week introduced the Incorporation Transparency and Law Enforcement Assistance Act to combat acts of terrorism, money laundering, tax evasion, and other wrongdoing facilitated by U.S. corporations with hidden owners.

The bill would end the practice of the 50 States forming corporations for unidentified persons, and instead require the States to obtain the identities of the persons behind the corporations.

To protect the United States from U.S. corporations being misused to support terrorism, money laundering, tax evasion, or other misconduct, the Levin-Grassley Incorporation Transparency and Law Enforcement Assistance Act would have the following features:

- Beneficial Ownership Information.  Require the States directly or through licensed formation agents to obtain the names of beneficial owners of corporations or limited liability companies (LLCs) formed under a State’s laws, ensure this information is updated, and provide the information to law enforcement upon receipt of a subpoena or summons.

- Identifying Information.  Require corporations to provide beneficial owners’ names, addresses, and a U.S. drivers license or passport number; or if the owners do not have either a U.S. drivers license nor passport, information from their non-U.S. passports.

- Federal Contractors.  Require corporations bidding on federal contracts to provide the same beneficial ownership information to the federal government.

- Shelf Corporations.  Require formation agents selling “shelf corporations” – companies formed for later sale to a third party – to identify the beneficial owners of those corporations.

- Penalties for False Information.  Establish penalties for persons who knowingly provide false information, or willfully fail to provide required information, on beneficial ownership.

- Exemptions.  Exempt from the disclosure obligation regulated corporations, including publicly traded companies, banks, broker-dealers, insurers, registered investment funds, and charities; corporations with a substantial U.S. presence; and corporations whose beneficial ownership information would not benefit the public interest or assist law enforcement.

- Funding.  Provide $30 million over three years to States from existing Treasury and Justice Department forfeiture funds to pay for the costs of complying with the Act.

- State Compliance Report.  Specify that nothing in the Act authorizes funds to be withheld from any State for failure to comply with the Act, but also require a GAO report by 2015 identifying which States are not in compliance so a future Congress can determine what steps to take.

- Transition Period.  Give the States three years, until October 2014, to require beneficial ownership information for corporations and LLCs formed under their laws.

- Anti-Money Laundering Safeguards.  Require paid formation agents to establish anti-money laundering programs to guard against supplying U.S. corporations or LLCs that facilitate misconduct.  Attorneys using paid formation agents would be exempt from this requirement.

- GAO Study.  Require GAO to complete a study of State beneficial ownership information requirements for partnerships, charities, and trusts.

“Today, it takes more information to obtain a driver’s license or open a U.S. bank account than it does to form a U.S. corporation,” said Levin. “Our States don’t require anyone to name the owners of the corporations being formed under their laws, practically inviting people to misuse our corporations. A single State can’t solve the problem on its own, because if one State starts requiring names, people seeking to use corporations for nefarious purposes can switch to another State with weaker requirements.

“Prosecutors of financial crimes follow the money,” Grassley said. “It’s hard for them to do that when the owners of shell corporations are able to hide their identities so easily. Setting consequences for submitting false ownership information would help law enforcement by imposing a hardship on the Ponzi schemers, money launderers and tax cheats who use shell corporations to conceal their fraud.”

States form almost two million corporations and limited liability companies (LLCs) within the United States each year without asking for the identity of the owners. The Levin-Grassley bill would require the States to add a single question to their existing incorporation forms requesting the names of the natural persons—the beneficial owners – behind the corporations being formed.

This is the third time the bill has been introduced. When the bill was introduced the first time in the 110th Congress, and he was a member of the U.S. Senate, President Obama was an original cosponsor.

Under the bill, states would not be required to verify the information, but penalties would apply to persons who submitted false information. Law enforcement would be given access to the information upon presentation of a subpoena or summons. Corporations bidding on federal contracts would have to provide the same beneficial ownership information to the federal government to ensure the United States knows with whom it is doing business. Regulated corporations whose ownership is already known, including publicly traded corporations, banks, and securities firms, would be exempt from the disclosure requirement.

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