U.S. Congress Tries, Again, on Corporate Transparency

Jun 28, 2017
In The News

Lawmakers in the U.S. House of Representatives and Senate unveiled bipartisan legislation on Wednesday they say will pierce the veil on shadowy corporate ownership.

The legislation, which would require companies to reveal their true, beneficial owners at the time of incorporation, has been proposed several times before in Congress, but it has always stalled in committee amid opposition from banks and states. Rep. Carolyn Maloney (D., N.Y.), when announcing the House version, said this time is different.

“The politics are coming together in support of it,” she said during a press conference on Wednesday.

Questions about U.S. policy surrounding corporate ownership transparency have been around for years, most recently from the Financial Action Task Force, a Paris-based international anti-money-laundering standards body, which said late last year that beneficial ownership is a deficiency that must be addressed.

The U.S. Treasury Department has tried to address some of the questions, imposing rules that go into effect in 2018 that require banks to identify the beneficial owners of corporate accounts. Under that rule, a beneficial owner is any individual who owns 25% or more of the equity interest in the legal entity, or an individual with “significant responsibility” to control the entity.

Experts point to the ease with which people can anonymously establish companies in certain states, where incorporation is a billion-dollar industry, as a key loophole allowing illicit funds into the U.S. One of the obstacles to passage for the earlier versions of the legislation, said Ms. Maloney, was that states didn’t support it.

The latest version was adjusted to allow states to collect the information and then hand it over to the federal government, but if states fail to collect the information, the U.S. Treasury Department will do the work itself, she said. Ms. Maloney, when announcing the legislation, cited the Panama Papers scandal, in which data leaked from a Panamanian law firm that helped people across the globe create shell companies, but she gave a reason why so few Americans appeared in the leak.

“You don’t have to go to Panama to hide illicit money,” she said, “You can hide it right here in America.”

The legislation, since it was last proposed, has gained some key backing, including from The Clearing House Association, a trade group owned by the largest U.S. banks. They bear the brunt of the compliance costs, and the penalties for failure, associated with identifying illicit funds in the financial system, the banks say.

Gregory Baer, president of The Clearing House Association, testified Wednesday before a House subcommittee hearing on anti-money laundering compliance, saying the member banks support the proposal. “They are all for it,” he said.

Activists concerned with beneficial ownership are on board as well. “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 Allie Robins, tax and budget associate for U.S. PIRG, in a statement.

Ms. Maloney, during the announcement, stressed how identifying beneficial owners can help U.S. law enforcement, and can aid in the fight against terrorism, by making it easier for authorities to follow the money.

“Terrorism financing is a huge concern to the safety of Americans,” she said.