Text: H.R.6098 — 111th Congress (2009-2010)All Bill Information (Except Text)

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Introduced in House (08/10/2010)


111th CONGRESS
2d Session
H. R. 6098

To amend title 31, United States Code, to ensure that persons who form corporations in the United States disclose the beneficial owners of those corporations, in order to prevent wrongdoers from exploiting United States corporations for criminal gain, to assist law enforcement in detecting, preventing, and punishing terrorism, money laundering, and other misconduct involving United States corporations, and for other purposes.


IN THE HOUSE OF REPRESENTATIVES
August 10, 2010

Mrs. Maloney (for herself and Mr. Frank of Massachusetts) introduced the following bill; which was referred to the Committee on Financial Services


A BILL

To amend title 31, United States Code, to ensure that persons who form corporations in the United States disclose the beneficial owners of those corporations, in order to prevent wrongdoers from exploiting United States corporations for criminal gain, to assist law enforcement in detecting, preventing, and punishing terrorism, money laundering, and other misconduct involving United States corporations, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. Short title.

This Act may be cited as the “Incorporation Transparency and Law Enforcement Assistance Act”.

SEC. 2. Findings.

Congress finds the following:

(1) Nearly 2,000,000 corporations and limited liability companies are being formed under the laws of the States each year.

(2) Very few States obtain meaningful information about the beneficial owners of the corporations and limited liability companies formed under their laws.

(3) A person forming a corporation or limited liability company within the United States typically provides less information to the State of incorporation than is needed to obtain a bank account or driver's license and typically does not name a single beneficial owner.

(4) Criminals have exploited the weaknesses in State formation procedures to conceal their identities when forming corporations or limited liability companies in the United States, and have then used the newly created entities to commit crimes affecting interstate and international commerce such as terrorism, drug trafficking, money laundering, tax evasion, securities fraud, financial fraud, and acts of foreign corruption.

(5) Law enforcement efforts to investigate corporations and limited liability companies suspected of committing crimes have been impeded by the lack of available beneficial ownership information, as documented in reports and testimony by officials from the Department of Justice, the Department of Homeland Security, the Financial Crimes Enforcement Network of the Department of the Treasury, the Internal Revenue Service, and the Government Accountability Office, and others.

(6) In July 2006, a leading international anti-money laundering organization, the Financial Action Task Force on Money Laundering (in this section referred to as the “FATF”), of which the United States is a member, issued a report that criticizes the United States for failing to comply with a FATF standard on the need to collect beneficial ownership information and urged the United States to correct this deficiency by July 2008.

(7) In response to the FATF report, the United States has repeatedly urged the States to strengthen their incorporation practices by obtaining beneficial ownership information for the corporations and limited liability companies formed under the laws of such States.

(8) Many States have established automated procedures that allow a person to form a new corporation or limited liability company within the State within 24 hours of filing an online application, without any prior review of the application by a State official. In exchange for a substantial fee, 2 States will form a corporation within 1 hour of a request.

(9) Dozens of Internet websites highlight the anonymity of beneficial owners allowed under the incorporation practices of some States, point to those practices as a reason to incorporate in those States, and list those States together with offshore jurisdictions as preferred locations for the formation of new corporations, essentially providing an open invitation to criminals and other wrongdoers to form entities within the United States.

(10) In contrast to practices in the United States, all 27 countries in the European Union are required to have formation agents identify the beneficial owners of the corporations formed under the laws of the country.

(11) To reduce the vulnerability of the United States to wrongdoing by United States corporations and limited liability companies with hidden owners, to protect interstate and international commerce from criminals misusing United States corporations and limited liability companies, to strengthen law enforcement investigations of suspect corporations and limited liability companies, to set minimum standards for and level the playing field among State incorporation practices, and to bring the United States into compliance with its international anti-money laundering obligations, Federal legislation is needed to require the States to obtain beneficial ownership information for the corporations and limited liability companies formed under the laws of such States.

SEC. 3. Transparent incorporation practices.

(a) Transparent incorporation practices.—

(1) IN GENERAL.—Chapter 53 of title 31, United States Code, is amended by inserting after section 5332 the following new section:

§ 5333. Transparent incorporation practices

“(a) Reporting requirements.—

“(1) IN GENERAL.—Not later than October 1, 2012, the Secretary of the Treasury shall issue regulations requiring each corporation and limited liability company formed in a State that does not have an incorporation system described under subsection (b) to file with the Secretary such information as the corporation or limited liability company would be required to provide the State if such State had an incorporation system described under subsection (b).

“(2) DISCLOSURE OF BENEFICIAL OWNERSHIP INFORMATION.—Beneficial ownership information reported to the Secretary of the Treasury pursuant to paragraph (1) shall be provided by the Secretary of the Treasury upon receipt of—

“(A) a civil or criminal subpoena or summons from a State agency, Federal agency, or congressional committee or subcommittee requesting such information; or

“(B) a written request made by a Federal agency on behalf of another country under an international treaty, agreement, or convention, or section 1782 of title 28, United States Code.

“(b) Incorporation system.—With respect to a State, an incorporation system is described under this subsection if it meets the following requirements:

“(1) Each applicant to form a corporation or limited liability company under the laws of the State is required to provide to the State during the formation process a list of the beneficial owners of the corporation or limited liability company that—

“(A) except as provided in paragraph (6), identifies each beneficial owner by—

“(i) name;

“(ii) current address; and

“(iii) non-expired passport issued by the United States or a non-expired drivers license issued by a State; and

“(B) if any beneficial owner exercises control over the corporation or limited liability company through another legal entity, such as a corporation, partnership, or trust, identifies each such legal entity and each such beneficial owner who will use that entity to exercise control over the corporation or limited liability company.

“(2) Each corporation or limited liability company formed under the laws of the State is required by the State to update the list of the beneficial owners of the corporation or limited liability company by providing the information described in paragraph (1) to the State not later than 60 days after the date of any change in the list of beneficial owners or the information required to be provided relating to each beneficial owner.

“(3) Beneficial ownership information relating to each corporation or limited liability company formed under the laws of the State is required to be maintained by the State until the end of the 5-year period beginning on the date that the corporation or limited liability company terminates under the laws of the State.

“(4) Beneficial ownership information relating to each corporation or limited liability company formed under the laws of the State shall be provided by the State upon receipt of—

“(A) a civil or criminal subpoena or summons from a State agency, Federal agency, or congressional committee or subcommittee requesting such information; or

“(B) a written request made by a Federal agency on behalf of another country under an international treaty, agreement, or convention, or section 1782 of title 28, United States Code.

“(5) A corporation or limited liability company formed under the laws of the State may not issue a certificate in bearer form evidencing either a whole or fractional interest in the corporation or limited liability company.

“(6) If any beneficial owner of a corporation or limited liability company formed under the laws of the State is not a United States citizen or a lawful permanent resident of the United States, each application described in paragraph (1) and each update described in paragraph (2) shall include a written certification by a formation agent residing in the State that the formation agent—

“(A) has verified the name, address, and identity of each beneficial owner that is not a United States citizen or a lawful permanent resident of the United States;

“(B) has obtained for each beneficial owner that is not a United States citizen or a lawful permanent resident of the United States a legible and credible copy of the pages of a government-issued passport bearing a photograph and unique identifying information for the beneficial owner;

“(C) will provide proof of the verification described in subparagraph (A) and the photograph described in subparagraph (B) upon request; and

“(D) will retain information and documents relating to the verification described in subparagraph (A) and the photograph described in subparagraph (B) until the end of the 5-year period beginning on the date that the corporation or limited liability company terminates, under the laws of the State.

“(c) Penalties.—

“(1) IN GENERAL.—It shall be unlawful for—

“(A) any person to affect interstate or foreign commerce by—

“(i) knowingly providing, or attempting to provide, false or fraudulent beneficial ownership information, including a false or fraudulent identifying photograph, to a State or licensed formation agent under State law in accordance with this section;

“(ii) willfully failing to provide complete or updated beneficial ownership information to a State or licensed formation agent under State law in accordance with this section; or

“(iii) knowingly disclosing the existence of a subpoena, summons, or other request for beneficial ownership information from a law enforcement agency under State law in accordance with this section without written authorization from the law enforcement agency; or

“(B) any licensed formation agent to affect interstate or foreign commerce by willfully failing to obtain or maintain credible and legible beneficial ownership information, including any required identifying photograph, under State law in accordance with this section, or willfully failing to provide beneficial ownership information in response to a subpoena, summons, or other request from a law enforcement agency in accordance with this section.

“(2) CIVIL AND CRIMINAL PENALTIES.—In addition to any civil or criminal penalty that may be imposed by a State, any person who violates paragraph (1) shall be liable to the United States for a civil penalty of not more than $10,000.

“(d) Funding Authorization.—To carry out this section, during the 3-year period beginning on the date of enactment of this section, upon application by a State, the Secretary shall make available to such State a reasonable amount of funding from the Department of the Treasury Forfeiture Fund established under section 9703(a) of title 31, United States Code.

“(e) Compliance Report.—Nothing in this section authorizes the Secretary to withhold from a State any funding otherwise available to the State because of a failure by that State to comply with this section. Not later than June 1, 2014, the Comptroller General of the United States shall submit to the Committee on Financial Services of the House of Representatives and the Committee on Homeland Security and Governmental Affairs of the Senate a report—

“(1) identifying which States obtain beneficial ownership information as described in this section;

“(2) with respect to each State that does not obtain such information, whether corporations and limited liability companies formed under the laws of such State are in compliance with this section and providing the specified beneficial ownership information to the Secretary; and

“(3) whether the Department of the Treasury is in compliance with this section and, if not, what steps it must take to come into compliance with this section.

“(f) Definitions.—For the purposes of this section:

“(1) BENEFICIAL OWNER.—

“(A) IN GENERAL.—Except as provided in subparagraph (B), the term ‘beneficial owner’ means a natural person who, directly or indirectly—

“(i) exercises substantial control over a corporation or limited liability company; or

“(ii) has a substantial interest in or receives substantial economic benefits from the assets of the corporation or limited liability company described in clause (i).

“(B) EXCEPTIONS.—The term ‘beneficial owner’ does not include—

“(i) a minor child;

“(ii) a person acting as a nominee, intermediary, custodian, or agent on behalf of another person;

“(iii) a person acting solely as an employee of a corporation or limited liability company, and whose control over or economic benefits from the corporation or limited liability company derive solely from the employment status of the individual;

“(iv) a person whose only interest in the corporation or limited liability company is through a right of inheritance, unless the individual also meets the requirements of subparagraph (A); or

“(v) a creditor of a corporation or limited liability company, unless the individual also meets the requirements of subparagraph (A).

“(C) LIMITATION.—A beneficial owner meeting the requirements for an entity under paragraph (2)(B) may provide the name of the entity instead of the name of a natural person.

“(2) CORPORATION; LIMITED LIABILITY COMPANY.—The terms ‘corporation’ and ‘limited liability company’—

“(A) have the meanings given such terms under the laws of the applicable State;

“(B) do not include any entity that is, and discloses in the application by the entity to form under the laws of the State or, if the entity was formed before the date of the enactment of this section, in a filing with the State under State law—

“(i) a business concern that is an issuer of a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 781) or that is required to file reports under section 15(d) of that Act (15 U.S.C. 78o(d));

“(ii) a business concern formed by a State, a political subdivision of a State, under an interstate compact between 2 or more States, by a department or agency of the United States, or under the laws of the United States;

“(iii) a depository institution (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813));

“(iv) a credit union (as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752));

“(v) a financial holding company (as defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841));

“(vi) a broker or dealer (as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c)) that is registered under section 15 of the Securities and Exchange Act of 1934 (15 U.S.C. 78o);

“(vii) an exchange or clearing agency (as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c)) that is registered under section 6 or 17A of the Securities Exchange Act of 1934 (15 U.S.C. 78f and 78q–1);

“(viii) an investment company (as defined in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a–3)) or an investment advisor (as defined in section 202(11) of the Investment Advisors Act of 1940 (15 U.S.C. 80b–2(11)), if the company or adviser is registered with the Securities and Exchange Commission, or has filed an application for registration which has not been denied, under the Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq.) or the Investment Advisor Act of 1940 (15 U.S.C. 80b–1 et seq.);

“(ix) an insurance company (as defined in section 2 of the Investment Company Act of 1940 (15 U.S.C. 80a–2));

“(x) a registered entity (as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a)), or a futures commission merchant, introducing broker, commodity pool operator, or commodity trading advisor (as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a)) that is registered with the Commodity Futures Trading Commission;

“(xi) a public accounting firm registered in accordance with section 102 of the Sarbanes–Oxley Act (15 U.S.C. 7212);

“(xii) a public utility that provides telecommunications service, electrical power, natural gas, or water and sewer services, within the United States;

“(xiii) a charity or nonprofit entity that is described in section 501(c), 527, or 4947(a)(1) of the Internal Revenue Code of 1986, has not been denied tax exempt status, and has filed the most recently due annual information return with the Internal Revenue Service, if required to file such a return;

“(xiv) any business concern that—

“(I) employs more than 20 employees on a full time basis in the United States;

“(II) files income tax returns in the United States demonstrating more than $10,000,000 in gross receipts or sales; and

“(III) has an operating presence at a physical office within the United States; or

“(xv) any corporation or limited liability company formed and owned by an entity described in clause (i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xi), (xii), (xiii), or (xiv); and

“(C) do not include any individual business concern or class of business concerns which the Secretary of the Treasury, with the written concurrence of the Attorney General of the United States, has determined in writing should be exempt from the requirements of subsection (a), because requiring beneficial ownership information from the business concern would not serve the public interest and would not assist law enforcement efforts to detect, prevent, or punish terrorism, money laundering, tax evasion, or other misconduct.

“(3) FORMATION AGENT.—The term ‘formation agent’ means a person who, for compensation, acts on behalf of another person to assist in the formation of a corporation or limited liability company under the laws of a State.”.

(2) RULEMAKING.—To carry out this Act and the amendments made by this Act, the Secretary of the Treasury, in consultation with the Secretary of Homeland Security and the Attorney General of the United States, may issue guidance or a rule to clarify application of the definitions added by this Act, or to specify how to verify beneficial ownership information.

(3) CONFORMING AMENDMENTS.—Title 31, United States Code, is amended—

(A) in section 5321(a)—

(i) in paragraph (1), by striking “sections 5314 and 5315” each place it appears and inserting “sections 5314, 5315, and 5333”; and

(ii) in paragraph (6), by inserting “(except section 5333)” after “subchapter” each place it appears; and

(B) in section 5322, by striking “section 5315 or 5324” each place it appears and inserting “section 5315, 5324, or 5333”.

(4) TABLE OF CONTENTS.—The table of contents of Chapter 53 of title 31, United States Code, is amended by inserting after the item relating to section 5332 the following:


“Sec. 5333. Transparent incorporation practices.”.

(5) RESTRICTIONS ON PUBLIC ACCESS.—A State may—

(A) restrict public access to all or any portion of the beneficial ownership information provided to the State as described under section 5332 of title 31, United States Code, as added by this Act; and

(B) by statute, regulation, order, or interpretation adopted or issued by the State after the date of enactment of this Act, provide for public access to all or any portion of such information.

(6) NO DUTY OF VERIFICATION.—This Act and the amendments made by this Act do not impose any obligation on a State to verify the name, address, or identity of a beneficial owner whose information is submitted to such State under section 5332 of title 31, United States Code, as added by this Act.

(b) Anti-Money laundering obligations of formation agents.—

(1) IN GENERAL.—Section 5312(a)(2) of title 31, United States Code, is amended—

(A) in subparagraph (Y), by striking “or” at the end;

(B) by redesignating subparagraph (Z) as subparagraph (AA); and

(C) by inserting after subparagraph (Y) the following:

“(Z) any person involved in forming a corporation or limited liability company; or”.

(2) DEADLINE FOR ANTI-MONEY LAUNDERING RULE FOR FORMATION AGENTS.—

(A) PROPOSED RULE.—Not later than 90 days after the date of enactment of this Act, the Secretary of the Treasury, in consultation with the Attorney General of the United States and the Commissioner of the Internal Revenue Service, shall publish a proposed rule in the Federal Register requiring persons described in section 5312(a)(2)(Z) of title 31, United States Code, as amended by this subsection, to establish anti-money laundering programs under subsection (h) of section 5318 of that title.

(B) FINAL RULE.—Not later than 270 days after the date of enactment of this Act, the Secretary of the Treasury shall publish the rule described in this subsection in final form in the Federal Register.

(C) EXCLUSIONS.—Any rule promulgated under this subsection shall exclude from the category of persons involved in forming a corporation or limited liability company—

(i) any government agency; and

(ii) any attorney or law firm that uses a paid formation agent operating within the United States to form the corporation or limited liability company.

SEC. 4. Study and report by Government Accountability Office.

Not later than 1 year after the date of enactment of this Act, the Comptroller General of the United States shall conduct a study and submit to the Congress a report—

(1) identifying each State that has procedures that enable persons to form or register under the laws of the State partnerships, trusts, or other legal entities, and the nature of those procedures;

(2) identifying each State that requires persons seeking to form or register partnerships, trusts, or other legal entities under the laws of the State to provide information about the beneficial owners (as that term is defined in section 5333(d)(1) of title 31, United States Code, as added by this Act) or beneficiaries of such entities, and the nature of the required information;

(3) evaluating whether the lack of available beneficial ownership information for partnerships, trusts, or other legal entities—

(A) raises concerns about the involvement of such entities in terrorism, money laundering, tax evasion, securities fraud, or other misconduct; and

(B) has impeded investigations into entities suspected of such misconduct; and

(4) evaluating whether the failure of the United States to require beneficial ownership information for partnerships and trusts formed or registered in the United States has elicited international criticism and what steps, if any, the United States has taken or is planning to take in response.