Senator Carl Levin, chairman of the Permanent Subcommittee on Investigations, and Senator Chuck Grassley, ranking member of the Senate Judiciary Committee, this week introduced the Incorporation Transparency and Law Enforcement Assistance Act. This is the third time the Act has come before the house; the first time it appeared President Obama had been a co-sponsor. Perhaps this time it will have more success.

Senator Levin is truly the indomitable champion in the fight against tax abuse and anti-money laundering initiatives in the US. The Act calls for transparency in company ownership. The Incorporation Transparency and Law Enforcement Assistance Act is designed to pierce the veil that currently allows beneficial owners to hide behind corporate structures that all too often have been misused to support terrorism, money laundering, tax evasion, or other misconduct. The Act 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.

In one example cited by Senator Levin ‘a New York company called the Assa Corporation owned a Manhattan skyscraper and, in 2007, wire transferred about $4.5 million in rental payments to a bank in Iran. U.S. law enforcement tracking the funds had no idea who was behind that shell corporation, until another government disclosed that it was owned by the Alavi Foundation which was known to have ties to the Iranian military. In other words, a New York corporation was being used to ship millions of U.S. dollars to Iran..”

Some of the key points of the act are:

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 wilfully fail to provide required information, on beneficial ownership.

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.  

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

“The U.S. financial system is a playground for corrupt, criminal, tax evading individuals from other countries,” said Global Financial Integrity’s Legal Counsel & Director of Government Affairs, Ms. Heather Lowe. “It is far too easy to gain access to financial services in the U.S. through anonymous U.S. corporations, while it is far too difficult for law enforcement groups to figure out who is really behind those corporations.” The bill has been welcomed by transparency groups around the world as well as law enforcement who will find the money trail easier to follow once the act is passed.

The act is supported by law enforcement groups and both the U.S. Department of Justice and the U.S. Treasury Department have agreed to provide a total of $30 million from their forfeiture fund accounts to help offset any costs that may be incurred in implementing this legislation.

A 2005 analysis by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) of suspicious activity reports indicated that as much as $18 billion in suspicious transactions occurred through international wire transfers utilising U.S. shell companies. Even Viktor Bout, the notorious arms dealer featured in the film ‘Lord of War’, and currently in jail facing charges for conspiracy to kill U.S. nationals, used shell companies around the world, including a dozen front companies formed in Texas, Delaware, and Florida.

The bill would help law enforcement trace assets in the fight against crime, and would bring the United States into compliance with the Financial Action Task Force by requiring the disclosure of corporate beneficial ownership information. “For years, the United States has been fighting offshore corporate secrecy laws, pointing out corporations were designed, not to hide ownership, but to protect owners from personal liability for corporate acts,” said Levin. “If we want to stop inappropriate corporate secrecy offshore, we need to stop it here at home as well.”

Last week, the US government released its’ new Strategy to Combat Transnational Organised Crime that stated that criminal networks “rely on industry experts, both witting and unwitting, to facilitate corrupt transactions and to create the necessary infrastructure to pursue their illicit schemes, such as creating shell corporations, opening offshore bank accounts in the shell corporation’s name, and creating front businesses for their illegal activity and money laundering.” The Strategy established as one of its action plans to “work with Congress to enact legislation to require disclosure of beneficial ownership information of legal entities at the time of company formation in order to enhance transparency for law enforcement and other purposes.”