Incorporation Transparency and Law Enforcement Act
Congresswoman Maloney has introduced the Incorporation Transparency and Law Enforcement Assistance Act, H.R. 6098. The bill would require the states to obtain information about the true ownership of a corporation when they allow its creation. As some have put it, this bill is a “no-brainer”, and it is fairly straightforward. It would require that the person creating the corporation to state the “beneficial owner” of the corporation and provide some form of identification.
Although this is as straightforward as it sounds, the implications for law enforcement are broad reaching. Criminal organizations are infamous for using shell corporations, both foreign and domestic, to open bank accounts, launder money, perpetrate fraud, and finance terrorism. It isn’t difficult for them to do so. Virtually no states require people applying to create corporations to provide the identity of the corporate owner. In fact, 48 of 50 states, except for Alabama and Alaska, allow for the unfettered creation of an anonymous corporate entity. As a result, just about anyone can easily manipulate the system to fund criminal activity.
Here is an example from a recent investigation in NY by the Manhattan District Attorney. The office announced investigations involving the movement of funds through banks in NY by entities controlled by the Iranian Military. In at least two cases, domestic shell companies were opened in two different states to further secret Iranian interests. Through a NY shell company, individuals working on behalf of the government of Iran were able to move funds to secret accounts held in offshore jurisdictions. Shockingly, the offshore government was able to give the Manhattan DA more information about the ownership of the NY entity than the state of NY could.
Although the DA does not contend that requiring a declaration of beneficial ownership would have stopped this activity, it would have been a start. If the declaration of beneficial ownership had been required, any falsification would at least have served as an extra tool for law enforcement to shut down the entity and prosecute the perpetrators.
The bill introduced will provide the kind of transparency that law enforcement needs to investigate financial crimes. However, it is narrowly drafted so that it is not overly burdensome on either states or incorporating entities. In fact, most corporations, including companies that are already regulated by federal banking regulators and companies that are over 20 employees, would be exempt from the bill’s requirements. This bill is meant to capture beneficial ownership information from companies that are able to escape regulation and oversight through other federal entities.
Senator Levin has introduced a similar bill in the Senate, and President Obama was the lead sponsor when he was a U.S. Senator. It is supported by numerous law enforcement associations, including the Federal Law Enforcement Officers Association, the Fraternal Order of Police, the National Association of Assistant United States Attorneys, the National Narcotic Officers’ Associations Coalition, the United States Marshals Service Association, and the Association of Former ATF Agents.
More on Incorporation Transparency and Law Enforcement Act
WASHINGTON, D.C. – Following the Obama administration’s announcement Thursday night of new rules to require financial institutions to identify and keep records of the beneficial owners of companies that employ their services, Congresswoman Carolyn B. Maloney (NY-12), a senior member of the House Financial Services Committee, and author of the Incorporation Transparency and Law Enforcement Assistance Act of 2016, released the following statement:
A U.S. lawmaker has called for a congressional committee to hold a hearing on legislation that would make it easier for law enforcement to identify legal owners of shell companies to curb future abuse.
Rep. Carolyn Maloney, a New York Democrat, made the request in a letter dated April 20 to House Financial Services Committee Chairman Jeb Hensarling, a Republican from Texas.