Lawmakers introduce bill to uncover shell company owners

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Members of Congress introduced bipartisan legislation to require anonymous shell companies to disclose their beneficial owners in an effort to uncover tax evasion, money laundering, terrorism financing and other crimes.

Rep. Carolyn B. Maloney, D-N.Y., joined together with Peter King, R-N.Y., to introduce the Corporate Transparency Act in the House, while Sen. Chuck Grassley, R-Iowa, and Sheldon Whitehouse, D-R.I., teamed up to introduced companion legislation, the True Incorporation Transparency for Law Enforcement (TITLE) Act, in the Senate.

The bill would direct the Treasury Department to issue regulations requiring corporations and limited liability companies that have been formed in a state that does not already require basic disclosure to file information about their beneficial owners. If a state elects not to collect beneficial ownership information, then the Treasury would collect beneficial ownership information as a backup. Entities would have to provide the beneficial owners’ name, current address, and non-expired passport or state-issued driver’s license. The bill would impose civil penalties on people who submit false or fraudulent beneficial ownership information, or who fail to provide complete or updated beneficial ownership information.

The beneficial ownership information collected by the Treasury or the states would only be available to law enforcement and to financial institutions, with customer consent, for purposes of complying with their “Know Your Customer” requirements under anti-money laundering laws.

The bill targets companies that are more likely to be shell companies. Since federally regulated banks, credit unions, investment advisers, broker-dealers, state-regulated insurance companies and charitable organizations are already required to disclose their beneficial owners, they would be exempt from the bill’s requirements. Companies with more than 20 employees and over $5 million in gross receipts or sales, and which have a physical presence in the U.S., would also be exempt from the bill’s requirements, as they are considered unlikely to be anonymous shell companies that were created to hide or launder illicit funds.

“There’s a reason you didn’t see many Americans involved in the Panama Papers—criminals in America can hide their money right here,” Maloney said in a statement Wednesday. “We’re the only advanced country in the world that doesn’t already require disclosure of beneficial ownership information and my Corporate Transparency Act will change that. Anonymous shell companies have become the preferred vehicle for money launderers, criminal organizations, and terrorist groups because they can’t be traced back to their true owners and the U.S. is one of the easiest places in the world to set up an anonymous shell companies. We are allowing criminals and terrorists to move money around in the U.S. financial system, and finance their operations, freely. Frankly, it’s an embarrassment.”

King pointed to the need to deter criminals. “Criminals are taking advantage of state laws by establishing firms —often without a physical presence or business activity— to access our banking system,” King said in a statement. “The Corporate Transparency Act targets this problem by requiring a company that has the characteristics of a shell corporation to disclose who benefits from the company’s operations and makes that information available only to law enforcement. This simple requirement would enable law enforcement to stop money from flowing across our borders to terrorist organizations.”

The bill attracted support from dozens of investor and anti-corruption advocacy groups.

“Consumer scams, defrauding taxpayers, tax evasion, secretive campaign spending, corruption, sanctions evasion, drug trafficking, and human trafficking are all facilitated by anonymous shell companies,” said U.S. Public Interest Research Group tax and budget associate Allie Robins in a statement. “The solution is to simply strike ‘anonymous’ out of the equation. When criminals can disappear behind a shroud of anonymity to launder their ill-earned money, law enforcement loses the trail and the American people are worse off for it.”

Global Witness released an undercover report in January 2016 on the use of U.S. shell companies for illicit activity.

“From multi-million dollar healthcare fraud to terrorist financing, anonymously-owned companies act as getaway cars for all sorts of criminals,” said Stefanie Ostfeld, deputy head of Global Witness’s U.S. Office. “Swift passage of this legislation will make it harder to move, enjoy and hide dirty money and demonstrate that Congress is serious about making sure the US is not exploited by criminals and the corrupt who are a risk to national security.”

“Corporations can used as front organizations by criminals conducting illegal activity like money laundering, fraud, and tax evasion,” said Chuck Canterbury, National President of the Fraternal Order of Police representing more than 330,000 members in every region of the country. “This legislation would act as a critical information gathering tool for law enforcement in combating these crimes by giving law enforcement access to the true identity of the owners using a business to conceal their illicit activity.”

“Dictators use financial secrecy to steal money from their people and human traffickers use shell companies," said Eric LeCompte executive director of the religious development group Jubilee USA. "We need Congressional action that protects vulnerable communities from being exploited through financial secrecy."

“Anonymous shell companies hurt small businesses,” said Amanda Ballantyne, national director of the Main Street Alliance, a group representing small businesses. “They enable fraud and corruption, distort the markets, and put small businesses at a competitive disadvantage. Small business owners support bipartisan efforts like today’s legislation that not only help level the playing field for small businesses, but also protect entrepreneurs and consumers from abusive and criminal practices.”

"It is critical that information about the natural person(s) who own or control companies (the beneficial owners) is finally collected by either the state or federal government and is made available to law enforcement and to financial institutions,” said Heather Lowe, legal counsel and director of government affairs at Global Financial Integrity in prepared remarks for testimony before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit. “Companies with unknown or hidden ownership are the number one problem in the AML world and the U.S. cannot continue to allow our failure to act to put the U.S. and global financial system at risk.”

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