Rep. Maloney Joins the Wilson Center to Discuss Global Kleptocracy & Corruption

May 20, 2020
Press Release

NEW YORK, NY — Congresswoman Carolyn B. Maloney (D-NY), primary sponsor of H.R. 2513, the Corporate Transparency Act, today joined the Wilson Center’s Kennan Institute for its Webcast: How Congress  is Taking on Global Kleptocracy and Corruption. The Congresswoman’s remarks, as prepared for delivery, are below.

Thank you so much for inviting me to join you today.

As you know, I’ve been working very hard on a bill called the Corporate Transparency Act, which would crack down on the illicit use of anonymous shell companies. And I’ve been honored to work on this bill with my good friend, Peter King, who has been a strong supporter of increasing transparency and strengthening law enforcement for many years.

The bill passed the House last October with bipartisan support, and the Senate Banking Committee has reached a compromise on their version of the bill, which is very similar to our bill. So I’m very optimistic about this bill being signed into law.

This is one of the most pressing national security problems we face in this country, because anonymous shell companies are the vehicle of choice for money launderers, criminals, and terrorists. The reason they are so popular is because they can’t be traced back to their true owners. Shell companies allow criminals and terrorists to move money around in the U.S. financial system, and finance their operations, freely and legally.

Unfortunately, we know that the U.S. is one of the easiest places in the entire world to set up anonymous shell companies. The reason why these shell companies are “anonymous” is because states don’t require companies to name their true, beneficial owners — the individuals who are collecting the profits, and who outright own the company.

We’re the only advanced country in the world that doesn’t already require disclosure of this information — and frankly, it’s an embarrassment.

When the Panama Papers came out last year, one of the most common questions is why there weren’t more Americans involved. And the answer is that Americans don’t have to go to Panama to set up anonymous shell companies — they can do it right here in the US!

But this isn’t just an embarrassment we need to address, it’s a problem that we really need to fix. These shell companies leave a gaping hole in our national security strategy. And the longer we wait to fix this problem, the more we put our country at risk. 

As any FBI agent or prosecutor will tell you, far too many of their investigations hit a dead-end at an anonymous shell company.

And because they can’t find out who the real owner of that shell company is, they can’t follow the money past the shell company, past this pile of cash that they know is financing illegal activity. The trail goes cold, and the investigation is stopped dead in its tracks.

Treasury conducted a pilot program a couple years ago, where they collected beneficial ownership information for real estate transactions in Manhattan and Miami over a 6-month period. And the results were stunning. Treasury found that about 30 percent of the transactions reported in those 6 months involved a beneficial owner or purchaser representative that had previously been the subject of a Suspicious Activity Report — in other words, these were potentially suspicious people buying these properties.

And this was after the Treasury Department had announced to the world that they would be collecting beneficial ownership information in these two cities for 6 months. So this didn’t even capture the money launderers who simply avoided these two cities for that 6 month period.

Our bill would solve this problem by requiring companies to disclose their true, beneficial owners to FinCEN at the time the company is formed.

This information would only be available to law enforcement, and to financial institutions, so they can comply with their “Know-Your-Customer” rules.

This bill would plug a huge hole in our national security defenses, and would be a massive benefit to law enforcement.

But this bill would also shore up the safety of our financial system, and would streamline the compliance costs for financial institutions that are trying to make sure that terrorists and criminals aren’t secretly using U.S. banks to move money around.

Treasury passed a rule three years ago that requires financial institutions to collect the beneficial ownership information for all of their corporate customers — which was a very important rule.

If you think about it, no American who walks into a bank branch can open an account without identifying themselves — without saying what their name is, what their address is, and providing some proof that they are who they say they are. So, why should companies be able to open bank accounts — and deposit millions of dollars — without also identifying who owns them?

FinCEN’s rule fixes that loophole, and I think it makes our financial system safer. But, it also puts the burden on the financial institution to collect the information, rather than putting the burden on the companies themselves.

Our bill would streamline this process by allowing financial institutions to access the FinCEN database of beneficial ownership information. That way, financial institutions will be able to better police the financial system, because they will truly know who their customers are — and will also ease the regulatory burden on financial institutions at the same time.

This is a win-win — it helps law enforcement, it helps financial institutions better protect the U.S. financial system, and it also reduces unnecessary regulatory burden.

I want to take some time to address one of the concerns that has been raised about the bill, because I think this concerns is not well-founded at all.

Some people have claimed that it would be overly burdensome on small businesses.

I don’t think that’s true at all. All of the experience in other countries that already collect beneficial ownership information has proven that it is very cheap for small businesses to comply. Critics have made wild claims about my bill costing small businesses millions of dollars, but in the UK, where they already collect this information, the cost of compliance for the average small business was only $200 — and that’s a one-time cost.

To me, that is a very modest price to pay for national security.

In the UK, the median company had 1.1 owners — which means that the vast majority of small businesses only have one owner. So for these businesses, they will only have to file one name with FinCEN. Just one.

And we’re only asking for four pieces of very basic information: your name, date of birth, current address, and driver’s license number. For most business owners, it would take them 5 minutes to collect that information — at most.

According to a study by Global Financial Integrity, you have to disclose more information to get a library card than you have to disclose to create a corporation or LLC. And you don’t hear people complaining about the burdens of getting a library card.

So, I think the idea that this disclosure would be unduly burdensome is simply false.

The bill also goes out of its way to exempt every category of business that already discloses their beneficial owners — either to regulators, or in public filings. This includes banks, credit unions, insurance companies, investment advisers, brokers, utilities, and non-profits.

The bill even exempts companies with more than 20 employees and over $5 million dollars in revenues — because if you have 20 employees and are actually generating a significant amount of revenues, then you’re almost certainly a real business, and not a shell company that is being used to launder money.

In fact, in almost all of the cases where law enforcement has uncovered a shell company that is being used for illicit purposes, the company had either zero or one employee. That’s why we felt comfortable exempting companies that have more than 20 employees.

So, I think we’ve gone way out of our way to ensure that the bill is appropriately tailored, and is not burdensome on small businesses.

The approach we’ve taken in our bill is the product of years of work — and years of compromises with different stakeholders, all with a view to building the broadest possible coalition of support.

And I think we’ve built a very large coalition — we have the support of 127 NGOs, all of the law enforcement groups, all of the banking trade associations, the credit union trade associations, human rights groups, state secretaries of state, most of the real estate industry — and many more.

As I mentioned, we have very strong momentum for this bill. The Senate Banking Committee had reached a bipartisan compromise on their version of the bill right before the coronavirus hit, and were planning a markup of the bill for the end of March — which unfortunately had to be postponed because of the coronavirus crisis.

But the fact that Chairman Crapo, Ranking Member Brown, and Senators Warner and Cotton could all agree that this bill needs to be passed is a great sign that when Congress eventually comes back, getting this bill signed into law can be one of the first orders of business.

So, I’m optimistic that the stars have finally aligned for beneficial ownership this Congress, and that this bill will become law.

I think there’s broad agreement that our A.M.L. system could be both more effective and less burdensome — and so we’re working hard to strike the right balance, and to get these reforms across the finish line.

And with that, I’d like to thank you again for inviting me to speak alongside my good friend Peter King on this very important issue.

I’d be happy to answer any of your questions.