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116th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 116-227
======================================================================
CORPORATE TRANSPARENCY ACT OF 2019
_______
October 8, 2019.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Ms. Waters, from the Committee on Financial Services, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 2513]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 2513) to ensure that persons who form
corporations or limited liability companies in the United
States disclose the beneficial owners of those corporations or
limited liability companies, in order to prevent wrongdoers
from exploiting United States corporations and limited
liability companies for criminal gain, to assist law
enforcement in detecting, preventing, and punishing terrorism,
money laundering, and other misconduct involving United States
corporations and limited liability companies, and for other
purposes, having considered the same, report favorably thereon
with an amendment and recommend that the bill as amended do
pass.
CONTENTS
Page
Purpose and Summary.............................................. 10
Background and Need for Legislation.............................. 10
Section-by-Section Analysis...................................... 12
Hearings......................................................... 18
Committee Consideration.......................................... 18
Committee Votes.................................................. 19
Statement of Oversight Findings and Recommendations of the
Committee...................................................... 23
Statement of Performance Goals and Objectives.................... 23
New Budget Authority and CBO Cost Estimate....................... 23
Committee Cost Estimate.......................................... 27
Unfunded Mandate Statement....................................... 27
Advisory Committee............................................... 27
Committee Correspondence......................................... 27
Application of Law to the Legislative Branch..................... 27
Earmark Statement................................................ 27
Duplication of Federal Programs.................................. 27
Changes to Existing Law.......................................... 28
The amendment is as follows:
Srtike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Corporate Transparency Act of 2019''.
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 require 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 at the time 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 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,
proliferation financing, drug and human trafficking, money
laundering, tax evasion, counterfeiting, piracy, 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 Department of the Treasury, and the
Government Accountability Office, and others.
(6) In July 2006, the leading international antimoney
laundering standard-setting body, 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. In December 2016, FATF issued
another evaluation of the United States, which found that
little progress has been made over the last ten years to
address this problem. It identified the ``lack of timely access
to adequate, accurate and current beneficial ownership
information'' as a fundamental gap in United States efforts to
combat money laundering and terrorist finance.
(7) In response to the 2006 FATF report, the United States
has urged the States to obtain beneficial ownership information
for the corporations and limited liability companies formed
under the laws of such States.
(8) In contrast to practices in the United States, all 28
countries in the European Union are required to have corporate
registries that include beneficial ownership information.
(9) 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 a clear, universal standard for
State incorporation practices, and to bring the United States
into compliance with international anti-money laundering
standards, Federal legislation is needed to require the
collection of beneficial ownership information for the
corporations and limited liability companies formed under the
laws of such States.
SEC. 3. TRANSPARENT INCORPORATION PRACTICES.
(a) In General.--
(1) Amendment to the bank secrecy act.--Chapter 53 of title
31, United States Code, is amended by inserting after section
5332 the following new section:
``Sec. 5333 Transparent incorporation practices
``(a) Reporting Requirements.--
``(1) Beneficial ownership reporting.--
``(A) In general.--Each applicant to form a
corporation or limited liability company under the laws
of a State or Indian Tribe shall file a report with
FinCEN containing a list of the beneficial owners of
the corporation or limited liability company that--
``(i) except as provided in paragraphs (3)
and (4), and subject to paragraph (2),
identifies each beneficial owner by--
``(I) full legal name;
``(II) date of birth;
``(III) current residential or
business street address; and
``(IV) a unique identifying number
from a non-expired passport issued by
the United States, a non-expired
personal identification card, or a non-
expired driver's license issued by a
State; and
``(ii) if the applicant is not a beneficial
owner, also provides the identification
information described in clause (i) relating to
such applicant.
``(B) Updated information.--Each corporation or
limited liability company formed under the laws of a
State or Indian Tribe shall--
``(i) submit to FinCEN an annual filing
containing a list of--
``(I) the current beneficial owners
of the corporation or limited liability
company and the information described
in subparagraph (A) for each such
beneficial owner; and
``(II) any changes in the beneficial
owners of the corporation or limited
liability company during the previous
year; and
``(ii) pursuant to any rule issued by the
Secretary of the Treasury under subparagraph
(C), update the list of the beneficial owners
of the corporation or limited liability company
within the time period prescribed by such rule.
``(C) Rulemaking on updating information.--Not later
than 9 months after the completion of the study
required under section 4(a)(1) of the Corporate
Transparency Act of 2019, the Secretary of the Treasury
shall consider the findings of such study and, if the
Secretary determines it to be necessary or appropriate,
issue a rule requiring corporations and limited
liability companies to update the list of the
beneficial owners of the corporation or limited
liability company within a specified amount of time
after the date of any change in the list of beneficial
owners or the information required to be provided
relating to each beneficial owner.
``(D) State notification.--Each State in which a
corporation or limited liability company is being
formed shall notify each applicant of the requirements
listed in subparagraphs (A) and (B).
``(2) Certain beneficial owners.--If an applicant to form a
corporation or limited liability company or a beneficial owner,
or similar agent of a corporation or limited liability company
who is required to provide identification information under
this subsection, does not have a nonexpired passport issued by
the United States, a nonexpired personal identification card,
or a non-expired driver's license issued by a State, each such
person shall provide to FinCEN the full legal name, current
residential or business street address, a unique identifying
number from a non-expired passport issued by a foreign
government, and a legible and credible copy of the pages of a
non-expired passport issued by the government of a foreign
country bearing a photograph, date of birth, and unique
identifying information for each beneficial owner, and each
application described in paragraph (1)(A) and each update
described in paragraph (1)(B) shall include a written
certification by a person residing in the State or Indian
country under the jurisdiction of the Indian Tribe forming the
entity that the applicant, corporation, or limited liability
company--
``(A) has obtained for each such beneficial owner, a
current residential or business street address and a
legible and credible copy of the pages of a non-expired
passport issued by the government of a foreign country
bearing a photograph, date of birth, and unique
identifying information for the person;
``(B) has verified the full legal name, address, and
identity of each such person;
``(C) will provide the information described in
subparagraph (A) and the proof of verification
described in subparagraph (B) upon request of FinCEN;
and
``(D) will retain the information and proof of
verification under this paragraph 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 or Indian Tribe.
``(3) Exempt entities.--
``(A) In general.--With respect to an applicant to
form a corporation or limited liability company under
the laws of a State or Indian Tribe, if such entity is
described in subparagraph (C) or (D) of subsection
(d)(4) and will be exempt from the beneficial ownership
disclosure requirements under this subsection, such
applicant, or a prospective officer, director, or
similar agent of the applicant, shall file a written
certification with FinCEN--
``(i) identifying the specific provision of
subsection (d)(4) under which the entity
proposed to be formed would be exempt from the
beneficial ownership disclosure requirements
under paragraphs (1) and (2);
``(ii) stating that the entity proposed to be
formed meets the requirements for an entity
described under such provision of subsection
(d)(4); and
``(iii) providing identification information
for the applicant or prospective officer,
director, or similar agent making the
certification in the same manner as provided
under paragraph (1) or (2).
``(B) Existing corporations or limited liability
companies.--On and after the date that is 2 years after
the final regulations are issued to carry out this
section, a corporation or limited liability company
formed under the laws of the State or Indian Tribe
before such date shall be subject to the requirements
of this subsection unless an officer, director, or
similar agent of the entity submits to FinCEN a written
certification--
``(i) identifying the specific provision of
subsection (d)(4) under which the entity is
exempt from the requirements under paragraphs
(1) and (2);
``(ii) stating that the entity meets the
requirements for an entity described under such
provision of subsection (d)(4); and
``(iii) providing identification information
for the officer, director, or similar agent
making the certification in the same manner as
provided under paragraph (1) or (2).
``(C) Exempt entities having ownership interest.--If
an entity described in subparagraph (C) or (D) of
subsection (d)(4) has or will have an ownership
interest in a corporation or limited liability company
formed or to be formed under the laws of a State or
Indian Tribe, the applicant, corporation, or limited
liability company in which the entity has or will have
the ownership interest shall provide the information
required under this subsection relating to the entity,
except that the entity shall not be required to provide
information regarding any natural person who has an
ownership interest in, exercises substantial control
over, or receives substantial economic benefits from
the entity.
``(4) FinCEN id numbers.--
``(A) Issuance of fincen id number.--
``(i) In general.--FinCEN shall issue a
FinCEN ID number to any individual who requests
such a number and provides FinCEN with the
information described under subclauses (I)
through (IV) of paragraph (1)(A)(i).
``(ii) Updating of information.--An
individual with a FinCEN ID number shall submit
an annual filing with FinCEN updating any
information described under subclauses (I)
through (IV) of paragraph (1)(A)(i).
``(B) Use of fincen id number in reporting
requirements.--Any person required to report the
information described under paragraph (1)(A)(i) with
respect to an individual may instead report the FinCEN
ID number of the individual.
``(C) Treatment of information submitted for fincen
id number.--For purposes of this section, any
information submitted under subparagraph (A) shall be
deemed to be beneficial ownership information.
``(5) Retention and disclosure of beneficial ownership
information by fincen.--
``(A) Retention of information.--Beneficial ownership
information relating to each corporation or limited
liability company formed under the laws of the State or
Indian Tribe shall be maintained by FinCEN until the
end of the 5-year period (or such other period of time
as the Secretary of the Treasury may, by rule,
determine) beginning on the date that the corporation
or limited liability company terminates.
``(B) Disclosure of information.--Beneficial
ownership information reported to FinCEN pursuant to
this section shall be provided by FinCEN only upon
receipt of--
``(i) subject to subparagraph (C), a request,
through appropriate protocols, by a local,
Tribal, State, or Federal law enforcement
agency;
``(ii) a request made by a Federal agency on
behalf of a law enforcement agency of another
country under an international treaty,
agreement, or convention, or an order under
section 3512 of title 18 or section 1782 of
title 28; or
``(iii) a request made by a financial
institution, with customer consent, as part of
the institution's compliance with due diligence
requirements imposed under the Bank Secrecy
Act, the USA PATRIOT Act, or other applicable
Federal, State, or Tribal law.
``(C) Appropriate protocols.--
``(i) Privacy.--The protocols described in
subparagraph (B)(i) shall--
``(I) protect the privacy of any
beneficial ownership information
provided by FinCEN to a local, Tribal,
State, or Federal law enforcement
agency;
``(II) ensure that a local, Tribal,
State, or Federal law enforcement
agency requesting beneficial ownership
information has an existing
investigatory basis for requesting such
information;
``(III) ensure that access to
beneficial ownership information is
limited to authorized users at a local,
Tribal, State, or Federal law
enforcement agency who have undergone
appropriate training, and that the
identity of such authorized users is
verified through appropriate
mechanisms, such as two-factor
authentication;
``(IV) include an audit trail of
requests for beneficial ownership
information by a local, Tribal, State,
or Federal law enforcement agency,
including, as necessary, information
concerning queries made by authorized
users at a local, Tribal, State, or
Federal law enforcement agency;
``(V) require that every local,
Tribal, State, or Federal law
enforcement agency that receives
beneficial ownership information from
FinCEN conducts an annual audit to
verify that the beneficial ownership
information received from FinCEN has
been accessed and used appropriately,
and consistent with this paragraph; and
``(VI) require FinCEN to conduct an
annual audit of every local, Tribal,
State, or Federal law enforcement
agency that has received beneficial
ownership information to ensure that
such agency has requested beneficial
ownership information, and has used any
beneficial ownership information
received from FinCEN, appropriately,
and consistent with this paragraph.
``(ii) Limitation on use.--Beneficial
ownership information provided to a local,
Tribal, State, or Federal law enforcement
agency under this paragraph may only be used
for law enforcement, national security, or
intelligence purposes.
``(b) No Bearer Share Corporations or Limited Liability Companies.--A
corporation or limited liability company formed under the laws of a
State or Indian Tribe may not issue a certificate in bearer form
evidencing either a whole or fractional interest in the corporation or
limited liability company.
``(c) Penalties.--
``(1) In general.--It shall be unlawful for any person to
affect interstate or foreign commerce by--
``(A) knowingly providing, or attempting to provide,
false or fraudulent beneficial ownership information,
including a false or fraudulent identifying photograph,
to FinCEN in accordance with this section;
``(B) willfully failing to provide complete or
updated beneficial ownership information to FinCEN in
accordance with this section; or
``(C) knowingly disclosing the existence of a
subpoena or other request for beneficial ownership
information reported pursuant to this section, except--
``(i) to the extent necessary to fulfill the
authorized request; or
``(ii) as authorized by the entity that
issued the subpoena, or other request.
``(2) Civil and criminal penalties.--Any person who violates
paragraph (1)--
``(A) shall be liable to the United States for a
civil penalty of not more than $10,000; and
``(B) may be fined under title 18, United States
Code, imprisoned for not more than 3 years, or both.
``(3) Limitation.--Any person who negligently violates
paragraph (1) shall not be subject to civil or criminal
penalties under paragraph (2).
``(4) Waiver.--The Secretary of the Treasury may waive the
penalty for violating paragraph (1) if the Secretary determines
that the violation was due to reasonable cause and was not due
to willful neglect.
``(5) Criminal penalty for the misuse or unauthorized
disclosure of beneficial ownership information.--The criminal
penalties provided for under section 5322 shall apply to a
violation of this section to the same extent as such criminal
penalties apply to a violation described in section 5322, if
the violation of this section consists of the misuse or
unauthorized disclosure of beneficial ownership information.
``(d) Definitions.--For the purposes of this section:
``(1) Applicant.--The term `applicant' means any natural
person who files an application to form a corporation or
limited liability company under the laws of a State or Indian
Tribe.
``(2) Bank secrecy act.--The term `Bank Secrecy Act' means--
``(A) section 21 of the Federal Deposit Insurance
Act;
``(B) chapter 2 of title I of Public Law 91-508; and
``(C) this subchapter.
``(3) Beneficial owner.--
``(A) In general.--Except as provided in subparagraph
(B), the term `beneficial owner' means a natural person
who, directly or indirectly, through any contract,
arrangement, understanding, relationship, or
otherwise--
``(i) exercises substantial control over a
corporation or limited liability company;
``(ii) owns 25 percent or more of the equity
interests of a corporation or limited liability
company; or
``(iii) receives substantial economic
benefits from the assets of a corporation or
limited liability company.
``(B) Exceptions.--The term `beneficial owner' shall
not include--
``(i) a minor child, as defined in the State
or Indian Tribe in which the entity is formed;
``(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 derives solely from the employment
status of the person;
``(iv) a person whose only interest in a
corporation or limited liability company is
through a right of inheritance; or
``(v) a creditor of a corporation or limited
liability company, unless the creditor also
meets the requirements of subparagraph (A).
``(C) Substantial economic benefits defined.--
``(i) In general.--For purposes of
subparagraph (A)(ii), a natural person receives
substantial economic benefits from the assets
of a corporation or limited liability company
if the person has an entitlement to more than a
specified percentage of the funds or assets of
the corporation or limited liability company,
which the Secretary of the Treasury shall, by
rule, establish.
``(ii) Rulemaking criteria.--In establishing
the percentage under clause (i), the Secretary
of the Treasury shall seek to--
``(I) provide clarity to corporations
and limited liability companies with
respect to the identification and
disclosure of a natural person who
receives substantial economic benefits
from the assets of a corporation or
limited liability company; and
``(II) identify those natural persons
who, as a result of the substantial
economic benefits they receive from the
assets of a corporation or limited
liability company, exercise a dominant
influence over such corporation or
limited liability company.
``(4) 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 or Indian Tribe;
``(B) include any non-United States entity eligible
for registration or registered to do business as a
corporation or limited liability company under the laws
of the applicable State or Indian Tribe;
``(C) do not include any entity that is--
``(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 constituted,
sponsored, or chartered by a State or Indian
Tribe, a political subdivision of a State or
Indian Tribe, under an interstate compact
between two 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 bank holding company (as defined in
section 2 of the Bank Holding Company Act of
1956 (12 U.S.C. 1841)) or a savings and loan
holding company (as defined in section 10(a) of
the Home Owners' Loan Act (12 U.S.C. 1467a(a));
``(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 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 adviser (as
defined in section 202(11) of the Investment
Advisers Act of 1940 (15 U.S.C. 80b-2(11))), if
the company or adviser is registered with the
Securities and Exchange Commission, 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 Adviser Act of 1940 (15 U.S.C. 80b-1
et seq.), or is an investment adviser described
under section 203(l) of the Investment Advisers
Act of 1940 (15 U.S.C. 80b-3(l));
``(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) or an entity
controlling, controlled by, or under common
control of such a firm;
``(xii) a public utility that provides
telecommunications service, electrical power,
natural gas, or water and sewer services,
within the United States;
``(xiii) a church, charity, nonprofit entity,
or other organization that is described in
section 501(c), 527, or 4947(a)(1) of the
Internal Revenue Code of 1986, that has not
been denied tax exempt status, and that has
filed the most recently due annual information
return with the Internal Revenue Service, if
required to file such a return;
``(xiv) a financial market utility designated
by the Financial Stability Oversight Council
under section 804 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act;
``(xv) an insurance producer (as defined in
section 334 of the Gramm-Leach-Bliley Act);
``(xvi) 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 $5,000,000 in gross receipts or
sales; and
``(III) has an operating presence at
a physical office within the United
States; or
``(xvii) any corporation or limited liability
company formed and owned by an entity described
in this clause or in clause (i), (ii), (iii),
(iv), (v), (vi), (vii), (viii), (ix), (x),
(xi), (xii), (xiii), (xiv), (xv), or (xvi); and
``(D) do not include any individual business concern
or class of business concerns which the Secretary of
the Treasury and the Attorney General of the United
States have jointly determined, by rule of otherwise,
to be exempt from the requirements of subsection (a),
if the Secretary and the Attorney General jointly
determine that 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 prosecute
terrorism, money laundering, tax evasion, or other
misconduct.
``(5) Fincen.--The term `FinCEN' means the Financial Crimes
Enforcement Network of the Department of the Treasury.
``(6) Indian country.--The term `Indian country' has the
meaning given that term in section 1151 of title 18.
``(7) Indian tribe.--The term `Indian Tribe' has the meaning
given that term under section 102 of the Federally Recognized
Indian Tribe List Act of 1994.
``(8) Personal identification card.--The term `personal
identification card' means an identification document issued by
a State, Indian Tribe, or local government to an individual
solely for the purpose of identification of that individual.
``(9) State.--The term `State' means any State, commonwealth,
territory, or possession of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, the Commonwealth of
the Northern Mariana Islands, American Samoa, Guam, or the
United States Virgin Islands.''.
(2) Rulemaking.--
(A) In general.--Not later than 1 year after the date
of enactment of this Act, the Secretary of the Treasury
shall issue regulations to carry out this Act and the
amendments made by this Act, including, to the extent
necessary, to clarify the definitions in section
5333(d) of title 31, United States Code.
(B) Revision of final rule.--Not later than 1 year
after the date of enactment of this Act, the Secretary
of the Treasury shall revise the final rule titled
``Customer Due Diligence Requirements for Financial
Institutions'' (May 11, 2016; 81 Fed. Reg. 29397) to--
(i) bring the rule into conformance with this
Act and the amendments made by this Act;
(ii) account for financial institutions'
access to comprehensive beneficial ownership
information filed by corporations and limited
liability companies, under threat of civil and
criminal penalties, under this Act and the
amendments made by this Act; and
(iii) reduce any burdens on financial
institutions that are, in light of the
enactment of this Act and the amendments made
by this Act, unnecessary or duplicative.
(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:
``5333. Transparent incorporation practices.''.
(b) Funding Authorization.--
(1) In general.--To carry out section 5333 of title 31,
United States Code, as added by subsection (a), funds shall be
made available to the Financial Crimes Enforcement Network (in
this subsection referred to as ``FinCEN'') to pay reasonable
costs relating to compliance with the requirements of such
section.
(2) Funding sources.--Funds shall be provided to FinCEN to
carry out the purposes described in paragraph (1) from one or
more of the following sources:
(A) Upon application by FinCEN, and without further
appropriation, the Secretary of the Treasury shall make
available to the FinCEN unobligated balances described
in section 9703(g)(4)(B) of title 31, United States
Code, in the Department of the Treasury Forfeiture Fund
established under section 9703(a) of title 31, United
States Code.
(B) Upon application by FinCEN, after consultation
with the Secretary of the Treasury, and without further
appropriation, the Attorney General of the United
States shall make available to FinCEN excess
unobligated balances (as defined in section
524(c)(8)(D) of title 28, United States Code) in the
Department of Justice Assets Forfeiture Fund
established under section 524(c) of title 28, United
States Code.
(3) Maximum amounts.--
(A) Department of the treasury.--The Secretary of the
Treasury may not make available to FinCEN a total of
more than $30,000,000 under paragraph (2)(A).
(B) Department of justice.--The Attorney General of
the United States may not make available to FinCEN a
total of more than $10,000,000 under paragraph (2)(B).
(c) Federal Contractors.--Not later than the first day of the first
full fiscal year beginning at least 1 year after the date of the
enactment of this Act, the Administrator for Federal Procurement Policy
shall revise the Federal Acquisition Regulation maintained under
section 1303(a)(1) of title 41, United States Code, to require any
contractor or subcontractor who is subject to the requirement to
disclose beneficial ownership information under section 5333 of title
31, United States Code, to provide the information required to be
disclosed under such section to the Federal Government as part of any
bid or proposal for a contract with a value threshold in excess of the
simplified acquisition threshold under section 134 of title 41, United
States Code.
SEC. 4. STUDIES AND REPORTS.
(a) Updating of Beneficial Ownership Information.--
(1) Study.--The Secretary of the Treasury, in consultation
with the Attorney General of the United States, shall conduct a
study to evaluate--
(A) the necessity of a requirement for corporations
and limited liability companies to update the list of
their beneficial owners within a specified amount of
time after the date of any change in the list of
beneficial owners or the information required to be
provided relating to each beneficial owner, taking into
account the annual filings required under section
5333(a)(1)(B)(i) of title 31, United States Code, and
the information contained in such annual filings; and
(B) the burden that a requirement to update the list
of beneficial owners within a specified period of time
after a change in such list of beneficial owners would
impose on corporations and limited liability companies.
(2) Report.--Not later than 1 year after the date of
enactment of this Act, the Secretary of the Treasury shall
submit a report on the study required under paragraph (1) to
the Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing, and
Urban Affairs of the Senate
(3) Public comment.--The Secretary of the Treasury shall seek
and consider public input, comments, and data in order to
conduct the study required under subparagraph paragraph (1).
(b) Other Legal Entities.--Not later than 2 years 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 or Indian Tribe that has
procedures that enable persons to form or register under the
laws of the State or Indian Tribe partnerships, trusts, or
other legal entities, and the nature of those procedures;
(2) identifying each State or Indian Tribe that requires
persons seeking to form or register partnerships, trusts, or
other legal entities under the laws of the State or Indian
Tribe 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;
(B) has impeded investigations into entities
suspected of such misconduct; and
(C) increases the costs to financial institutions of
complying with due diligence requirements imposed under
the Bank Secrecy Act, the USA PATRIOT Act, or other
applicable Federal, State, or Tribal law; 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.
(c) Effectiveness of Incorporation Practices.--Not later than 5 years
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
assessing the effectiveness of incorporation practices implemented
under this Act and the amendments made by this Act in--
(1) providing law enforcement agencies with prompt access to
reliable, useful, and complete beneficial ownership
information; and
(2) strengthening the capability of law enforcement agencies
to combat incorporation abuses, civil and criminal misconduct,
and detect, prevent, or punish terrorism, money laundering, tax
evasion, or other misconduct.
SEC. 5. DEFINITIONS.
In this Act, the terms ``Bank Secrecy Act'', ``beneficial owner'',
``corporation'', and ``limited liability company'' have the meaning
given those terms, respectively, under section 5333(d) of title 31,
United States Code.
Purpose and Summary
On May 3, 2019, Representative Carolyn Maloney introduced
H.R. 2513, the ``Corporate Transparency Act of 2019,'' which
would require corporations and limited liability corporations
(LLCs) to disclose their true ``beneficial owners'' to the
Financial Crime Enforcement Network (FinCEN) at the time a
company is formed and in annual filings. Companies would also
disclose beneficial ownership and changes in beneficial owners
in annual filings.
The FinCEN database of beneficial ownership information
would be available to law enforcement agencies and, with
customer consent, to financial institutions for purposes of
complying with their ``Know-Your-Customer'' regulatory
requirements, along with appropriate privacy protections. The
Corporate Transparency Act further establishes criminal
penalties for the misuse or unauthorized disclosure of the
beneficial ownership information. Criminal penalties may also
be imposed on persons who knowingly provide false or fraudulent
beneficial information or who willfully fail to complete or
update the required filings. The Corporate Transparency Act,
however, is explicit in providing an exception that declares
that negligent violations will not be subject to civil or
criminal penalties. Penalties may also be waived where the
Secretary of the Treasury determines that a violation was based
on reasonable cause.
The Corporate Transparency Act exempts entities already
required by Federal or state law to disclose their beneficial
owners, such as SEC-regulated public companies, state-regulated
insurance companies, and charitable organizations. It also
requires FinCEN to act within a year to remove redundancies
with its Customer Due Diligence rule.
Background and Need for Legislation
No state of the United States currently requires companies,
including anonymous shell companies, to disclose their
beneficial owners. Anonymous shell companies are business
entities formed to hold funds or conduct financial transactions
but generally do not have a physical address, employees,
business operations, or real assets. They afford a high level
of secrecy, enabling criminals, terrorists, and money
launderers to make use of them to hide their illicit proceeds
and facilitate illegal activities. This lack of transparency is
considered by law enforcement, financial institutions, and
anti-corruption organizations to be a primary obstacle to
tackling financial crime in the modern era. The Corporate
Transparency Act would address this omnipresent hindrance by
requiring a company's beneficial owners to be disclosed to
FinCEN at the time the company is formed and in annual filings.
Furthermore, the United States does not meet international
standards with regards to disclosure of beneficial ownership.
The Financial Action Task Force (FATF), the international
standard-setting body for anti-money laundering/combatting the
financing of terrorism (AML/CFT), conducted a peer review on
the United States AML/CFT regime in December 2016 and
determined that ``lack of timely access to adequate, accurate
and current beneficial ownership (BO) information remains one
of the fundamental gaps in the U.S. context.''\1\ Several other
developed countries have met international standards of
collecting beneficial ownership information. The European Union
(E.U.), for example, enacted the E.U. Fourth Anti-Money
Laundering Directive in 2015, requiring all members states to
collect and share beneficial ownership information. The United
Kingdom has also established a publicly searchable database and
commensurate laws to fulfill this purpose. Accordingly,
requiring the disclosure of a company's beneficial owners would
bring the United States in compliance with FATF recommendations
and in line with partner nations.
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\1\FATF (2016), Anti-money laundering and counter-terrorist
financing measures--United States, Fourth Round Mutual Evaluation
Report, FATF, Paris, p. 4 www.fatf-gafi.org/publications/
mutualevaluations/documents/mer-united-states-2016.html.
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Bringing the United States in line with these standards,
the Corporate Transparency Act's disclosure requirements will
define beneficial owners as including all natural persons who
exercise substantial control over a company, own 25% or more of
the equity interests of a company, or receive substantial
economic benefits from the assets of a company. To ensure that
privacy is protected, the Corporate Transparency Act requires
FinCEN to establish protocols and oversee the access and
appropriate use of the beneficial ownership information by
eligible law enforcement agencies. FinCEN and every recipient
law enforcement agency must also audit this access and
appropriate use on an annual basis to ensure adherence to these
standards. The agency must also give filers the option to
obtain a masked, FinCEN-generated customer identification
number for use in the fulfillment of related reporting
requirements.
On March 13, 2019, the Subcommittee on National Security,
International Development, and Monetary Policy held a hearing
during which the legislation was considered. Dennis Lormel, a
former special agent at the Federal Bureau of Investigation
(FBI) and former Director of the FBI's Terrorist Financing
Operation Section, spoke in support of the bill stating ``I
want to strongly encourage the committee to pass this
legislation, beneficial ownership legislation. I have been
advocating for this since 2012, and I think it's really
important.'' Lormel also stated that he believes the collection
of beneficial ownership information would help law enforcement
pursue criminal drug traffickers.
In a May 6, 2019 letter, the National District Attorneys
Association (NDAA), the largest prosecutor organization
representing 2,500 elected and appointed District Attorneys and
40,000 Assistant District Attorneys across the United States,
wrote, ``[f]ollowing hearings in the Senate and House on this
issue, NDAA has chosen to support the Corporate Transparency
Act. The need for the collection of beneficial ownership
information is critical to law enforcement investigations into
organized transnational criminal operations, terrorism
financing and other unlawful activity.''\2\ In a separate May
6, 2019 letter, the Fraternal Order of Police (FOP) wrote, ``I
am writing on behalf of the members of the Fraternal Order of
Police to advise you of our strong support for HR. 2513, the
`Corporation Transparency Act.' The FOP has supported this
legislation for many years and we are grateful that the
committee will be considering it this week. Transnational
criminal organizations and terrorist operations are using our
banks, financial institutions and other means to profit from
their illegal activity. This is a well-documented problem for
our financial institutions and for law enforcement as we work
together to shut down these sophisticated criminal
enterprises.''\3\
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\2\Letter to the Honorable Carolyn B. Maloney, National District
Attorneys Association (May 6, 2019), https://thefactcoalition.org/wp-
content/uploads/2019/05/NDAA-Ben-Ownership-Letter-5-6-19-Maloney.pdf.
\3\Letter to Chairwoman Waters and Ranking Member McHenry,
Fraternal Order of Police (May 6, 2019) https://thefactcoalition.org/
wp-content/uploads/2019/05/FOP-Support-HR-2513-Corpoarte-
Transparency.pdf.
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In addition, the Corporate Transparency Act, and the
collection of beneficial ownership information, is supported by
a wide range of stakeholders in addition to those referenced
above, including law enforcement associations, transparency
advocates, national security experts, anti-human trafficking
organizations, human rights groups, international development
organizations, financial services industry representatives, and
real estate associations. Some of these supporters of the
legislation or collection of beneficial ownership information
include the National Sheriff's Association, the National
Association of Assistant U.S. Attorneys (NAAUSA), a bipartisan
group of 91 national security experts,\4\ Jubilee USA, Street
Grace, Polaris, human rights groups (including Amnesty
International USA, Human Rights Watch, Human Rights First,
Freedom House), international development organizations
(including ONE Campaign, Oxfam, ActionAid, Bread for the
World), Bank Policy Institute, Consumer Bankers Association,
Securities Industry and Financial Markets Association, Mid-Size
Bank Coalition of America, Institute of International Bankers,
American Bankers Association, Financial Services Forum, Bankers
Association for Finance and Trade, Institute of International
Finance, Independent Community Bankers of America (ICBA),
National Association of Federally-Insured Credit Unions
(NAFCU), American Escrow Association, American Land Title
Association, National Association of REALTORS, Real Estate
Services Providers Council, Inc. (RESPRO).
---------------------------------------------------------------------------
\4\Letter to Chairwoman Waters and Ranking Member McHenry,
Bipartisan Group of 91 National Security Experts Urge Lawmakers to End
Anonymous Companies (June 10, 2019), https://thefactcoalition.org/wp-
content/uploads/2019/06/HFSC-Letter-on-Anonymous-Companies-and-
National-Security-20190610.pdf.
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Section-by-Section Analysis
Section 1. Short title
This section provides that the short title of the bill is
the ``Corporate Transparency Act of 2019''.
Section 2. Findings
This section states various findings that demonstrate the
need for the bill. These provide in part that--
1. Nearly 2,000,000 corporations and limited liability
companies are formed under the laws of the several States each
year;
2. Very few states require information about the beneficial
owners of such corporations and companies.
3. A person forming such corporations of companies
typically provides less information at the time of
incorporation than needed to obtain a bank account or driver's
license.
4. Criminals have concealed their identities and used such
entities to commit crimes affecting interstate and
international commerce such as terrorism, proliferation
financing, drug and human trafficking, money laundering, and
security and financial fraud.
5. Law enforcement efforts to investigate such entities are
impeded by a lack of available beneficial ownership
information.
6. The Financial Action Task Force on Money Laundering
criticized the United States for failing to collect beneficial
ownership information, and the United States itself has urged
individual states to obtain beneficial ownership information.
7. This gap is in contrast to the requirements of all 28
countries in the European Union to have corporate registries
that include beneficial ownership.
8. Because of these factors, Federal legislation is needed
to require the collection of beneficial ownership information
for such entities.
Section 3. Transparent incorporation practices
Paragraph (1) of subsection (a) amends the Bank Secrecy Act
(BSA) by adding a new section 5333 to chapter 53, title 31 of
the U.S. Code.
Beneficial ownership reporting requirements
Subsection (a)(1) of the new section 5333 requires
applicants seeking to form a corporation or a limited liability
company (LLC) (hereinafter, a ``company'') to file a list of
its beneficial owners with the Financial Crimes Enforcement
Network (FinCEN) at the time the company is formed. The list of
beneficial owners filed with FinCEN must include the same
information that financial institutions are required to collect
under FinCEN's Customer Due Diligence (CDD) rule: the full
legal name, date of birth, current residential or business
address, and a current identifying number, such as a driver's
license or passport number, for each beneficial owner.
Applicants are also required to provide the aforementioned
identification information even if they are not themselves
beneficial owners.
Subsection (a)(1) also requires companies to file annually
with FinCEN a list of its current beneficial owners, as well as
a list of any changes in beneficial ownership that occurred
during the previous year. In addition, the Treasury Secretary
is authorized to require companies to file more frequent
updates with FinCEN if the Secretary issues a rule requiring
updates within a specified amount of time after a change in a
company's beneficial ownership. Prior to issuing this rule, the
Secretary, in consultation with the Attorney General, must
conduct a study of the necessity of requiring companies to file
updates with FinCEN in between the required annual filings.
Finally, subsection (a)(1) requires states to notify each
applicant seeking to form a company in the state of its
obligation to file a list of its beneficial owners with FinCEN.
Identification of certain beneficial owners
Subsection (a)(2) of the new section 5333 requires that, if
a beneficial owner of a company does not have a current U.S.
identifying number, such as a driver's license or U.S. passport
number, applicants seeking to form the company must file with
FinCEN each foreign beneficial owner's full legal name, current
residential or business address, and a current foreign passport
number, along with a copy of the foreign passport.
In each filing with FinCEN, applicants for a company with a
foreign beneficial owner must certify that they have obtained
all the necessary information for each foreign beneficial
owner, have verified the name, address, and identity of each
foreign beneficial owner, will provide this information to
FinCEN upon request, and will retain the information for 5
years after the company terminates.
Exempt entities
Subsection (a)(3) of the new section 5333 requires
applicants seeking to form an entity that is exempt from filing
beneficial ownership information with FinCEN (see section
5333(d)(4)(C) for a list of exempt entities) to file a written
certification with FinCEN identifying the specific applicable
exemption and provide the identifying information (as described
in Section 5333(a)(1)) of the applicant.
Existing entities that qualify for an exemption have 2
years from the date that the final regulations are issued by
Treasury to carry out this Act to file the required
certification with FinCEN stating that it is exempt.
For existing exempt entities that have an ownership
interest in a non-exempt company, only the non-exempt company
is required to file beneficial ownership information with
FinCEN.
FinCEN ID numbers, retention, and disclosure of information
Subsection (a)(4) of the new section 5333 requires FinCEN
to issue a FinCEN ID number to any individuals who requests one
and provide identifying information (as described in the new
section 5333(a)(1)). Individuals with a FinCEN ID number are
required to submit an annual filing with FinCEN updating their
identifying information. Any person required to report
identifying information as described in the new section
5333(a)(1) may report the FinCEN ID number of the individual in
the place of the individual's identifying information. The
information submitted for a FinCEN ID number shall be deemed to
be beneficial ownership information.
Subsection (a)(5)(A) of the new section 5333 requires
FinCEN to retain the beneficial ownership information filed
with it for 5 years after the company terminates. Treasury is
authorized to shorten the 5-year retention period by rule.
Subsection (a)(5)(B) provides that FinCEN may only provide
beneficial ownership information to:
1. Federal, state, local, or Tribal law enforcement
agencies, and only pursuant to a request through appropriate
protocols;
2. A Federal agency making a request on behalf of a foreign
law enforcement agency pursuant to an international treaty,
agreement, convention, or order; and
3. Financial institutions, with customer consent, for
purposes of complying with FinCEN's CDD rule.
Privacy safeguards
Subsection (a)(5)(C) includes robust privacy safeguards for
FinCEN's database of beneficial ownership information--to which
law enforcement agencies will have access under subparagraph
(B)--which are modeled after FinCEN's privacy safeguards for
its Suspicious Activity Report database (known as FinCEN
Query).
Specifically, subsection (a)(5)(C) requires that the
protocols through which law enforcement agencies can access
FinCEN's beneficial ownership information must:
1. Protect the privacy of any beneficial ownership
information;
2. Ensure that any law enforcement agency requesting
beneficial ownership information from FinCEN have an existing
investigatory basis for its request;
3. Ensure that only authorized users at law enforcement
agencies (who have undergone appropriate training) have access
to the database and that their authorized user status is
verified through appropriate mechanisms such as two-factor
authentication;
4. Include an audit trail of every law enforcement agency's
requests for beneficial ownership information; and
5. Require annual audits by FinCEN and by each law
enforcement agency that has access to the beneficial ownership
database, to ensure that those agencies are using the
beneficial ownership information appropriately. These audits
are intended to be similar to the annual inspections that
FinCEN currently conducts of law enforcement agencies that have
access to BSA data through the FinCEN Portal/FinCEN Query
system.
Further, subsection (a)(5)(C) prohibits any beneficial
ownership information provided to law enforcement agencies by
FinCEN from being used for inappropriate reasons, by stating
that such beneficial ownership information may only be used for
law enforcement, national security, or intelligence purposes.
Enforcement measures
Subsection (b) of the new section 5333 prohibits certain
companies from issuing bearer shares.
Subsection (c) of the new section 5333 provides that it is
unlawful for anyone to:
1. Knowingly\5\ file false beneficial ownership information
to FinCEN;
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\5\ Black's Law Dictionary defines ``knowingly'' as: ``In such a
manner that the actor engaged in prohibited conduct with the knowledge
that the social harm that the law was designed to prevent was
practically certain to result; deliberately.'' See Black's Law
Dictionary (10th ed. 2014).
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2. Willfully\6\ fail to provide complete or updated
beneficial ownership information to FinCEN; or
---------------------------------------------------------------------------
\6\Black's Law Dictionary defines ``willful'' as: ``Voluntary and
intentional, but not necessarily malicious.'' Id.
---------------------------------------------------------------------------
3. Knowingly disclose the existence of a subpoena or other
request for beneficial ownership information (except to the
extent necessary to fulfill the authorized request for
beneficial ownership information, or if the agency issuing the
subpoena or request authorized the disclosure).
Importantly, Subsection (c) also explicitly states that
negligent violations are not penalized.
Violations of this subsection are subject to a civil
penalty of not more than $10,000, or criminal penalties under
title 18 of the U.S. Code, which can include fines and
imprisonment for not more than 3 years.
Subsection (c) also creates a waiver process for violations
that are due to reasonable cause and not due to willful
neglect, which is modeled on the Internal Revenue Service (IRS)
waiver process for companies' SS-4 filings.
Finally, subsection (c) provides strict penalties for
misuse or unauthorized disclosure by government employees of
beneficial ownership information collected by FinCEN. These
penalties, which are identical to the penalties for
unauthorized disclosure of Suspicious Activity Reports (SARs),
include criminal penalties of up to $250,000 and imprisonment
for not more than 5 years.
Definitions
Subsection (d) of the new section 5333 defines key terms in
the bill, the most important of which are listed below.
Paragraph (1) provides that the term ``applicant'' means
any natural person who files an application to form a company
under state or tribal law.
Paragraph (3) provides that the term ``beneficial owner''
means a natural person who, directly or indirectly, through any
contract, arrangement, understanding, relationship, or
otherwise:
1. Exercises substantial control over a company;
2. Owns 25% or more of the equity interests of a
company; or
3. Receives substantial economic benefits from the
assets of a company.
Paragraph (3) also provides that a person receives
``substantial economic benefits'' from a company if the person
has an entitlement to more than a specified percentage of the
funds or assets of the company, which Treasury is required to
establish by promulgating a rule.
Paragraph (3) also provides that a ``beneficial owner''
does not include: a minor child; a person acting as an agent,
nominee, intermediary, or custodian on behalf of another
person; a person acting solely as an employee of the company; a
person with mere inheritance rights in a company; or a mere
creditor of a company.
Paragraph (4) provides that the ``terms ``corporation'' and
``limited liability company'' have the meanings given to those
terms under the applicable state laws.
Paragraph (4) also provides that the following entities are
exempt from the definitions of ``corporation'' and ``limited
liability company'':
1. Public companies under the Securities Exchange Act
of 1934;
2. Federally chartered entities, and entities
sponsored or chartered under an interstate compact
between two or more states;
3. Depository institutions;
4. Credit unions;
5. Bank holding companies and savings and loan
holding companies;
6. SEC-registered broker-dealers, exchanges, clearing
agencies, investment advisers, investment companies,
and exempt reporting advisers;
7. State-regulated insurance companies and insurance
agents and brokers;
8. CFTC-registered futures commission merchants
(FCMs), introducing brokers, commodity pool operators,
and commodity trading advisors (CTAs);
9. PCAOB-registered public accounting firms;
10. Public utilities;
11. Churches, charities, nonprofit entities, and any
other entity that qualifies for tax-exempt status under
sections 501(a), 527, or 4947(a)(1) of the Internal
Revenue Code;
12. Systemically important financial market utilities
(SIFMUs);
13. Any company in the U.S. that has more than:
a. 20 employees in the U.S.; and
b. $5 million in annual gross receipts or sales;
14. Any company formed and owned by an exempt entity;
and
15. Any company or class of companies that the
Treasury Secretary and the Attorney General jointly
determine should be exempt from the beneficial
ownership reporting requirements in this bill.
Rulemaking, funding, and requirements on Federal
contractors
Subsection (a)(2) of section 3 authorizes Treasury to issue
regulations to carry out this Act.
Subsection (a)(2) also requires Treasury, within one year,
to revise the Customer Due Diligence rule, in order to: bring
the rule into conformance with this Act; account for the fact
that financial institutions have access to comprehensive, high-
quality beneficial ownership information under this Act; and
reduce any burdens on financial institutions that are, because
of the new beneficial ownership reporting system established by
this Act, now unnecessary or duplicative.
Subsection (b) of section 3 authorizes $30 million in
funding from the Treasury Forfeiture Fund, and $10 million in
funding from the Department of Justice Asset Forfeiture Fund,
to carry out this Act.
Subsection (c) of Section 3 requires the Administrator for
Federal Procurement Policy to require any contractor or
subcontractor that is required to file beneficial ownership
information under this Act to also file the same beneficial
ownership information with the Federal Government as part of
its bid or proposal for a contract.
Section 4. Studies and reports
This section requires three studies:
Subsection (a) requires the Treasury Secretary, in
consultation with the Attorney General to study the necessity
and burden of requiring companies to file updates with FinCEN
when a change in beneficial ownership occurs in between the
required annual filings. Within one year of enactment, the
Treasury Secretary shall submit a report to Congress on the
findings of the study.
Subsection (b) requires the General Accounting Office
(GAO), within 2 years of the enactment of this Act, to study
whether the lack of beneficial ownership information for
partnerships, trusts, or other legal entities raises concerns
about the involvement of those entities in money laundering and
other misconduct.
Subsection (c) requires the GAO, within 5 years of
enactment of this Act, to study how effective the beneficial
ownership reporting requirements in this Act have been in
providing law enforcement with timely access to reliable and
useful beneficial ownership information, and whether such
access has helped law enforcement agencies combat money
laundering and other misconduct.
Section 5. Definitions
This section clarifies that the definitions of ``beneficial
owner,'' ``corporation,'' and ``limited liability company'' in
this Act have the same meaning as in the new 31 U.S.C.
Sec. 5333(d) added by this Act.
Hearings
For the purposes of section 103(i) of H. Res. 6 for the
116th Congress--
1. The Committee on Financial Services held a hearing to
consider a discussion draft of H.R. 2513 entitled `Promoting
Corporate Transparency: Examining Legislative Proposals to
Detect and Deter Financial Crime' on March 13, 2019. Testifying
on the panel was: Mr. Jacob Cohen, former Director, Office of
Stakeholder Engagement, FinCEN; Mr. Dennis M. Lormel, President
and Chief Executive Officer, DML Associates, LLC; Mr. Amit
Sharma, Chief Executive Officer, FinClusive; and Dr. Gary
Shiffman, Founder and Chief Executive Officer, Giant Oak, Inc.
2. In addition, in the 115th Congress, the Committee held a
related joint hearing with the Subcommittee on Terrorism and
Illicit Finance to consider H.R. 2219, the ``Counter Terrorism
and Illicit Finance Act'' entitled, `Legislative Proposals to
Counter Terrorism and Illicit Finance' on November 29, 2017.
Testifying on the panel was: Mr. Daniel H. Bley, Executive Vice
President and Chief Risk Officer, Webster Bank, on behalf of
the Mid-Size Bank Coalition of America; Mr. John J. Byrne,
President, Condor Consulting LLC' Mr. William J. Fox, Managing
Director, Global Head of Financial Crimes Compliance, Bank of
America, on behalf of The Clearing House; Ms. Stefanie Ostfeld,
Deputy Head of US Office, Global Witness; and Mr. Chip Poncy,
President and Co-Founder, Financial Integrity Network.
Committee Consideration
The Committee on Financial Services met in open session on
June 12, 2019, and ordered H.R. 2513 to be reported favorably
to the House with an amendment in the nature of a substitute by
a vote of 43 yeas and 16 nays, a quorum being present.
Committee Votes and Roll Call Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
following roll call votes occurred during the Committee's
consideration of H.R. 2513.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Statement of Oversight Findings and Recommendations of the Committee
In compliance with clause 3(c)(1) of rule XIII and clause
2(b)(1) of rule X of the Rules of the House of Representatives,
the Committee's oversight findings and recommendations are
reflected in the descriptive portions of this report.
Statement of Performance Goals and Objectives
Pursuant to clause (3)(c) of rule XIII of the Rules of the
House of Representatives, the goals of H.R. 2513 are to require
corporations and limited liability corporations to disclose
their true ``beneficial owners'' to the Financial Crime
Enforcement Network at the time a company is formed and in
annual filings.
New Budget Authority and CBO Cost Estimate
Pursuant to clause 3(c)(2) of rule XIII of the Rules of the
House of Representatives and section 308(a) of the
Congressional Budget Act of 1974, and pursuant to clause
3(c)(3) of rule XIII of the Rules of the House of
Representatives and section 402 of the Congressional Budget Act
of 1974, the Committee has received the following estimate for
H.R. 2513 from the Director of the Congressional Budget Office:
U.S. Congress,
Congressional Budget Office,
Washington, DC, September 12, 2019.
Hon. Maxine Waters,
Chairwoman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Madam Chairwoman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 2513, the
Corporate Transparency Act of 2019.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Mark
Grabowicz.
Sincerely,
Phillip L. Swagel,
Director.
Enclosure.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The bill would
Require certain companies to provide
information annually to the Financial Crimes
Enforcement Network (FinCEN)
Require FinCEN to inspect certain law
enforcement agencies
Establish civil and criminal fines for
violations of the bill's provisions
Require states to notify some applicants for
corporation and limited liability corporation (LLC)
status of new requirements to identify beneficial
owners of the corporation
Prohibit some newly formed corporations and
LLCs from issuing bearer shares (equity securities
wholly owned by the holder of the physical stock
certificate)
Require corporations and LLCs to provide
beneficial ownership information annually to FinCen
Estimated budgetary effects would primarily stem from
Costs to FinCEN to hire additional employees
to carry out the bill's provisions
Areas of significant uncertainty include
The number of new annual filings with FinCEN
that would result from enactment of the bill
Bill summary: H.R. 2513 would require certain corporations
and limited liability companies, or applicants to form such
entities, to provide information to the Financial Crimes
Enforcement Network annually. Violators of the bill's
provisions would be subject to civil and criminal penalties.
Estimated federal cost: The estimated budgetary effect of
H.R. 2513 is shown in Table 1. The costs of the legislation
fall within budget function 750 (administration of justice).
TABLE 1.--ESTIMATED INCREASES IN SPENDING SUBJECT TO APPROPRIATION UNDER H.R. 2513\a\
----------------------------------------------------------------------------------------------------------------
By fiscal year, millions of dollars--
---------------------------------------------------------
2019-
2019 2020 2021 2022 2023 2024 2024
----------------------------------------------------------------------------------------------------------------
Estimated Authorization............................... 0 26 27 27 28 28 136
Estimated Outlays 0 23 26 27 28 28 132
----------------------------------------------------------------------------------------------------------------
\a\In addition to the amounts above, CBO estimates that enacting H.R. 2513 would have insignificant effects on
revenues and direct spending in each year and over the five and ten-year periods.
Basis of estimate: CBO assumes that the legislation will be
enacted near the end of 2019 and that the necessary amounts
will be provided each year. Estimated outlays are based on
historical spending patterns for similar activities.
Direct spending: H.R. 2513 would make the funds available
to FinCEN for the agency to implement the bill's provisions, as
follows:
Up to $30 million of unobligated balances
from the Treasury Forfeiture Fund, and;
Up to $10 million of unobligated balances
from the Department of Justice Assets Forfeiture Fund.
CBO's May 2019 baseline projects that both forfeiture funds
will obligate and outlay all of their available balances over a
period of several years. FinCEN expects that it would have to
update and expand its information technology systems to carry
out the bill and, based on information from the agency, CBO
estimates that those one-time costs would total about $40
million. CBO expects those funds would be provided to FinCEN
from the forfeiture funds as directed by the bill. Because
those funds would have otherwise been spent under current law,
we estimate that enacting the bill could affect the timing of
outlays but would not increase direct spending over the 2020-
2029 period.
Violators of the bill's reporting requirements could be
subject to civil and criminal penalties, so enacting H.R. 2513
could increase collections of fines. Civil fines are recorded
in the budget as revenues. Criminal fines are recorded as
revenues, deposited in the Crime Victims Fund, and subsequently
spent without further appropriation. CBO estimates that any
additional collections would not be significant in any year and
over the 2020-2029 period because of the relatively small
number of additional cases likely to be affected.
Spending subject to appropriation: H.R. 2513 would require
certain corporations and limited liability companies, or
applicants to form such entities, to provide information
annually to FinCEN about the ownership of such entities. Most
of the entities that would be affected by the bill are small
businesses that currently are not required to report to FinCEN.
FinCEN currently receives about 20 million filings each
year from companies and spends about $23 million annually to
collect, store, analyze, and disseminate this information. Upon
enactment of H.R. 2513, the agency expects to receive an
additional 25 million to 30 million filings each year. On that
basis, CBO estimates that the agency would need an
appropriation of $25 million in 2020 to hire additional
personnel to handle the new filings; those costs would grow
each year because of expected increases in inflation.
In addition, the new information provided to FinCEN would
be available to law enforcement agencies, upon request, and the
bill would require FinCEN to conduct an annual inspection of
each such agency to ensure that the requests are legitimate and
that the information is used appropriately. FinCEN expects that
it would need to hire five new employees to carry out the
additional inspection and liaison activities with the law
enforcement community. CBO estimates that the new employees
would cost about $1 million annually.
In total, CBO estimates that implementing H.R. 2513 would
cost $132 million over the 2020-2024 period for additional
FinCEN activities.
Uncertainty: The cost to FinCEN to implement the bill
depends largely on the number of businesses that would be
required to file with the agency under H.R. 2513. The budgetary
effect of the bill could be different if the number of such
filings differs significantly from CBO's estimate.
Pay-As-You-Go considerations: The Statutory Pay-As-You-Go
Act of 2010 establishes budget-reporting and enforcement
procedures for legislation affecting direct spending or
revenues. CBO estimates that enacting H.R. 2513 would have
insignificant effects on direct spending and revenues in each
year, over the 2019-2024 period, and over the 2019-2029 period.
Increase in long-term deficits: None.
Mandates: H.R. 2513 contains intergovernmental and private-
sector mandates as defined in the Unfunded Mandates Reform Act
(UMRA). CBO estimates that the cost of the mandate on public
entities would fall below the threshold established in UMRA
($82 million in 2019, adjusted annually for inflation). CBO
estimates that the cost of the mandates on private-sector
entities, however, would exceed the threshold established in
UMRA ($164 million in 2019, adjusted annually for inflation).
Mandates that apply to public entities: H.R. 2513 would
require states to notify entities applying to form a
corporation or an LLC of new requirements to report information
about beneficial owners. CBO expects that states would include
the notification in materials provided to applicants for
corporate or LLC designations and that the cost to update those
materials would be small.
Mandates that apply to private entities: H.R. 2513 would
prohibit a new corporation or LLC formed under state or tribal
laws from issuing bearer shares. (Bearer shares are equity
securities wholly owned by the holder of the physical stock
certificate. Issuers of bearer shares do not register the owner
of the shares or track ownership transfers.) Because the
prohibition would not affect existing bearer shares and would
simply prohibit new shares from being issued, CBO estimates the
cost of the mandate would be small.
The bill also would require corporations or LLCs formed
under state or tribal laws to report the identity of beneficial
owners to FinCEN and to annually update that information. CBO
anticipates the bill would generate approximately 25 million to
30 million new filings each year. Because of the high volume of
businesses that must meet the new reporting requirements and
the additional administrative burden to file a new report, CBO
estimates that the total costs to comply with the mandate would
be substantial.
Estimate prepared by: Federal costs: Mark Grabowicz;
Mandates: Rachel Austin.
Estimate reviewed by: Kim P. Cawley, Chief, Natural and
Physical Resources Cost Estimates Unit; Susan Willie, Chief,
Public and Private Mandates Unit; H. Samuel Papenfuss, Deputy
Assistant Director for Budget Analysis.
Committee Cost Estimate
Clause 3(d)(1) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison of the
costs that would be incurred in carrying out H.R. 2513.
However, clause 3(d)(2)(B) of that rule provides that this
requirement does not apply when the committee has included in
its report a timely submitted cost estimate of the bill
prepared by the Director of the Congressional Budget Office
under section 402 of the Congressional Budget Act.
Unfunded Mandate Statement
Pursuant to Section 423 of the Congressional Budget and
Impoundment Control Act (as amended by Section 101(a)(2) of the
Unfunded Mandates Reform Act, Pub. L. 104-4), the Committee
adopts as its own the estimate of federal mandates regarding
H.R. 2513, as amended, prepared by the Director of the
Congressional Budget Office.
Advisory Committee
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Application of Law to the Legislative Branch
Pursuant to section 102(b)(3) of the Congressional
Accountability Act, Pub. L. No. 104-1, H.R. 2513, as amended,
does not apply to terms and conditions of employment or to
access to public services or accommodations within the
legislative branch.
Earmark Statement
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 2513 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as described in clauses 9(e), 9(f), and 9(g) of rule
XXI.
Duplication of Federal Programs
Pursuant to clause 3(c)(5) of rule XIII of the Rules of the
House of Representatives, the Committee states that no
provision of H.R. 2513 establishes or reauthorizes a program of
the Federal Government known to be duplicative of another
federal program, a program that was included in any report from
the Government Accountability Office to Congress pursuant to
section 21 of Public Law 111-139, or a program related to a
program identified in the most recent Catalog of Federal
Domestic Assistance.
Changes to Existing Law
In compliance with clause 3(e) of Rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, H.R. 2513, as reported, are shown as follows:
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman):
TITLE 31, UNITED STATES CODE
* * * * * * *
SUBTITLE IV--MONEY
* * * * * * *
PART 1--NATIONAL MONEY LAUNDERING AND RELATED FINANCIAL CRIMES STRATEGY
* * * * * * *
CHAPTER 53--MONETARY TRANSACTIONS
SUBCHAPTER I--CREDIT AND MONETARY EXPANSION
Sec.
5301. Buying obligations of the United States Government.
* * * * * * *
SUBCHAPTER II--RECORDS AND REPORTS ON MONETARY INSTRUMENTS TRANSACTIONS
* * * * * * *
5333. Transparent incorporation practices.
* * * * * * *
SUBCHAPTER II--RECORDS AND REPORTS ON MONETARY INSTRUMENTS TRANSACTIONS
* * * * * * *
Sec. 5321. Civil penalties
(a)(1) A domestic financial institution or nonfinancial trade
or business, and a partner, director, officer, or employee of a
domestic financial institution or nonfinancial trade or
business, willfully violating this subchapter or a regulation
prescribed or order issued under this subchapter (except
[sections 5314 and 5315] sections 5314, 5315, and 5333 of this
title or a regulation prescribed under [sections 5314 and 5315]
sections 5314, 5315, and 5333), or willfully violating a
regulation prescribed under section 21 of the Federal Deposit
Insurance Act or section 123 of Public Law 91-508, is liable to
the United States Government for a civil penalty of not more
than the greater of the amount (not to exceed $100,000)
involved in the transaction (if any) or $25,000. For a
violation of section 5318(a)(2) of this title or a regulation
prescribed under section 5318(a)(2), a separate violation
occurs for each day the violation continues and at each office,
branch, or place of business at which a violation occurs or
continues.
(2) The Secretary of the Treasury may impose an additional
civil penalty on a person not filing a report, or filing a
report containing a material omission or misstatement, under
section 5316 of this title or a regulation prescribed under
section 5316. A civil penalty under this paragraph may not be
more than the amount of the monetary instrument for which the
report was required. A civil penalty under this paragraph is
reduced by an amount forfeited under section 5317(b) of this
title.
(3) A person not filing a report under a regulation
prescribed under section 5315 of this title or not complying
with an injunction under section 5320 of this title enjoining a
violation of, or enforcing compliance with, section 5315 or a
regulation prescribed under section 5315, is liable to the
Government for a civil penalty of not more than $10,000.
(4) Structured Transaction Violation.--
(A) Penalty authorized.--The Secretary of the
Treasury may impose a civil money penalty on any person
who violates any provision of section 5324.
(B) Maximum amount limitation.--The amount of any
civil money penalty imposed under subparagraph (A)
shall not exceed the amount of the coins and currency
(or such other monetary instruments as the Secretary
may prescribe) involved in the transaction with respect
to which such penalty is imposed.
(C) Coordination with forfeiture provision.--The
amount of any civil money penalty imposed by the
Secretary under subparagraph (A) shall be reduced by
the amount of any forfeiture to the United States in
connection with the transaction with respect to which
such penalty is imposed.
(5) Foreign financial agency transaction violation.--
(A) Penalty authorized.--The Secretary of the
Treasury may impose a civil money penalty on any person
who violates, or causes any violation of, any provision
of section 5314.
(B) Amount of penalty.--
(i) In general.--Except as provided in
subparagraph (C), the amount of any civil
penalty imposed under subparagraph (A) shall
not exceed $10,000.
(ii) Reasonable cause exception.--No penalty
shall be imposed under subparagraph (A) with
respect to any violation if--
(I) such violation was due to
reasonable cause, and
(II) the amount of the transaction or
the balance in the account at the time
of the transaction was properly
reported.
(C) Willful violations.--In the case of any person
willfully violating, or willfully causing any violation
of, any provision of section 5314--
(i) the maximum penalty under subparagraph
(B)(i) shall be increased to the greater of--
(I) $100,000, or
(II) 50 percent of the amount
determined under subparagraph (D), and
(ii) subparagraph (B)(ii) shall not apply.
(D) Amount.--The amount determined under this
subparagraph is--
(i) in the case of a violation involving a
transaction, the amount of the transaction, or
(ii) in the case of a violation involving a
failure to report the existence of an account
or any identifying information required to be
provided with respect to an account, the
balance in the account at the time of the
violation.
(6) Negligence.--
(A) In general.--The Secretary of the Treasury may
impose a civil money penalty of not more than $500 on
any financial institution or nonfinancial trade or
business which negligently violates any provision of
this subchapter (except section 5333) or any regulation
prescribed under this subchapter (except section 5333).
(B) Pattern of negligent activity.--If any financial
institution or nonfinancial trade or business engages
in a pattern of negligent violations of any provision
of this subchapter (except section 5333) or any
regulation prescribed under this subchapter (except
section 5333), the Secretary of the Treasury may, in
addition to any penalty imposed under subparagraph (A)
with respect to any such violation, impose a civil
money penalty of not more than $50,000 on the financial
institution or nonfinancial trade or business.
(7) Penalties for international counter money laundering
violations.--The Secretary may impose a civil money penalty in
an amount equal to not less than 2 times the amount of the
transaction, but not more than $1,000,000, on any financial
institution or agency that violates any provision of subsection
(i) or (j) of section 5318 or any special measures imposed
under section 5318A.
(b) Time Limitations for Assessments and Commencement of
Civil Actions.--
(1) Assessments.--The Secretary of the Treasury may
assess a civil penalty under subsection (a) at any time
before the end of the 6-year period beginning on the
date of the transaction with respect to which the
penalty is assessed.
(2) Civil actions.--The Secretary may commence a
civil action to recover a civil penalty assessed under
subsection (a) at any time before the end of the 2-year
period beginning on the later of--
(A) the date the penalty was assessed; or
(B) the date any judgment becomes final in
any criminal action under section 5322 in
connection with the same transaction with
respect to which the penalty is assessed.
(c) The Secretary may remit any part of a forfeiture under
subsection (c) or (d) of section 5317 of this title or civil
penalty under subsection (a)(2) of this section.
(d) Criminal Penalty Not Exclusive of Civil Penalty.--A civil
money penalty may be imposed under subsection (a) with respect
to any violation of this subchapter notwithstanding the fact
that a criminal penalty is imposed with respect to the same
violation.
(e) Delegation of Assessment Authority to Banking Agencies.--
(1) In general.--The Secretary of the Treasury shall
delegate, in accordance with section 5318(a)(1) and
subject to such terms and conditions as the Secretary
may impose in accordance with paragraph (3), any
authority of the Secretary to assess a civil money
penalty under this section on depository institutions
(as defined in section 3 of the Federal Deposit
Insurance Act) to the appropriate Federal banking
agencies (as defined in such section 3).
(2) Authority of agencies.--Subject to any term or
condition imposed by the Secretary of the Treasury
under paragraph (3), the provisions of this section
shall apply to an appropriate Federal banking agency to
which is delegated any authority of the Secretary under
this section in the same manner such provisions apply
to the Secretary.
(3) Terms and conditions.--
(A) In general.--The Secretary of the
Treasury shall prescribe by regulation the
terms and conditions which shall apply to any
delegation under paragraph (1).
(B) Maximum dollar amount.--The terms and
conditions authorized under subparagraph (A)
may include, in the Secretary's sole
discretion, a limitation on the amount of any
civil penalty which may be assessed by an
appropriate Federal banking agency pursuant to
a delegation under paragraph (1).
Sec. 5322. Criminal penalties
(a) A person willfully violating this subchapter or a
regulation prescribed or order issued under this subchapter
(except [section 5315 or 5324] section 5315, 5324, or 5333 of
this title or a regulation prescribed under [section 5315 or
5324] section 5315, 5324, or 5333), or willfully violating a
regulation prescribed under section 21 of the Federal Deposit
Insurance Act or section 123 of Public Law 91-508, shall be
fined not more than $250,000, or imprisoned for not more than
five years, or both.
(b) A person willfully violating this subchapter or a
regulation prescribed or order issued under this subchapter
(except [section 5315 or 5324] section 5315, 5324, or 5333 of
this title or a regulation prescribed under [section 5315 or
5324] section 5315, 5324, or 5333), or willfully violating a
regulation prescribed under section 21 of the Federal Deposit
Insurance Act or section 123 of Public Law 91-508, while
violating another law of the United States or as part of a
pattern of any illegal activity involving more than $100,000 in
a 12-month period, shall be fined not more than $500,000,
imprisoned for not more than 10 years, or both.
(c) For a violation of section 5318(a)(2) of this title or a
regulation prescribed under section 5318(a)(2), a separate
violation occurs for each day the violation continues and at
each office, branch, or place of business at which a violation
occurs or continues.
(d) A financial institution or agency that violates any
provision of subsection (i) or (j) of section 5318, or any
special measures imposed under section 5318A, or any regulation
prescribed under subsection (i) or (j) of section 5318 or
section 5318A, shall be fined in an amount equal to not less
than 2 times the amount of the transaction, but not more than
$1,000,000.
* * * * * * *
Sec. 5333 Transparent incorporation practices
(a) Reporting Requirements.--
(1) Beneficial ownership reporting.--
(A) In general.--Each applicant to form a
corporation or limited liability company under
the laws of a State or Indian Tribe shall file
a report with FinCEN containing a list of the
beneficial owners of the corporation or limited
liability company that--
(i) except as provided in paragraphs
(3) and (4), and subject to paragraph
(2), identifies each beneficial owner
by--
(I) full legal name;
(II) date of birth;
(III) current residential or
business street address; and
(IV) a unique identifying
number from a non-expired
passport issued by the United
States, a non-expired personal
identification card, or a non-
expired driver's license issued
by a State; and
(ii) if the applicant is not a
beneficial owner, also provides the
identification information described in
clause (i) relating to such applicant.
(B) Updated information.--Each corporation or
limited liability company formed under the laws
of a State or Indian Tribe shall--
(i) submit to FinCEN an annual filing
containing a list of--
(I) the current beneficial
owners of the corporation or
limited liability company and
the information described in
subparagraph (A) for each such
beneficial owner; and
(II) any changes in the
beneficial owners of the
corporation or limited
liability company during the
previous year; and
(ii) pursuant to any rule issued by
the Secretary of the Treasury under
subparagraph (C), update the list of
the beneficial owners of the
corporation or limited liability
company within the time period
prescribed by such rule.
(C) Rulemaking on updating information.--Not
later than 9 months after the completion of the
study required under section 4(a)(1) of the
Corporate Transparency Act of 2019, the
Secretary of the Treasury shall consider the
findings of such study and, if the Secretary
determines it to be necessary or appropriate,
issue a rule requiring corporations and limited
liability companies to update the list of the
beneficial owners of the corporation or limited
liability company within a specified amount of
time after the date of any change in the list
of beneficial owners or the information
required to be provided relating to each
beneficial owner.
(D) State notification.--Each State in which
a corporation or limited liability company is
being formed shall notify each applicant of the
requirements listed in subparagraphs (A) and
(B).
(2) Certain beneficial owners.--If an applicant to
form a corporation or limited liability company or a
beneficial owner, or similar agent of a corporation or
limited liability company who is required to provide
identification information under this subsection, does
not have a nonexpired passport issued by the United
States, a nonexpired personal identification card, or a
non-expired driver's license issued by a State, each
such person shall provide to FinCEN the full legal
name, current residential or business street address, a
unique identifying number from a non-expired passport
issued by a foreign government, and a legible and
credible copy of the pages of a non-expired passport
issued by the government of a foreign country bearing a
photograph, date of birth, and unique identifying
information for each beneficial owner, and each
application described in paragraph (1)(A) and each
update described in paragraph (1)(B) shall include a
written certification by a person residing in the State
or Indian country under the jurisdiction of the Indian
Tribe forming the entity that the applicant,
corporation, or limited liability company--
(A) has obtained for each such beneficial
owner, a current residential or business street
address and a legible and credible copy of the
pages of a non-expired passport issued by the
government of a foreign country bearing a
photograph, date of birth, and unique
identifying information for the person;
(B) has verified the full legal name,
address, and identity of each such person;
(C) will provide the information described in
subparagraph (A) and the proof of verification
described in subparagraph (B) upon request of
FinCEN; and
(D) will retain the information and proof of
verification under this paragraph 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 or
Indian Tribe.
(3) Exempt entities.--
(A) In general.--With respect to an applicant
to form a corporation or limited liability
company under the laws of a State or Indian
Tribe, if such entity is described in
subparagraph (C) or (D) of subsection (d)(4)
and will be exempt from the beneficial
ownership disclosure requirements under this
subsection, such applicant, or a prospective
officer, director, or similar agent of the
applicant, shall file a written certification
with FinCEN--
(i) identifying the specific
provision of subsection (d)(4) under
which the entity proposed to be formed
would be exempt from the beneficial
ownership disclosure requirements under
paragraphs (1) and (2);
(ii) stating that the entity proposed
to be formed meets the requirements for
an entity described under such
provision of subsection (d)(4); and
(iii) providing identification
information for the applicant or
prospective officer, director, or
similar agent making the certification
in the same manner as provided under
paragraph (1) or (2).
(B) Existing corporations or limited
liability companies.--On and after the date
that is 2 years after the final regulations are
issued to carry out this section, a corporation
or limited liability company formed under the
laws of the State or Indian Tribe before such
date shall be subject to the requirements of
this subsection unless an officer, director, or
similar agent of the entity submits to FinCEN a
written certification--
(i) identifying the specific
provision of subsection (d)(4) under
which the entity is exempt from the
requirements under paragraphs (1) and
(2);
(ii) stating that the entity meets
the requirements for an entity
described under such provision of
subsection (d)(4); and
(iii) providing identification
information for the officer, director,
or similar agent making the
certification in the same manner as
provided under paragraph (1) or (2).
(C) Exempt entities having ownership
interest.--If an entity described in
subparagraph (C) or (D) of subsection (d)(4)
has or will have an ownership interest in a
corporation or limited liability company formed
or to be formed under the laws of a State or
Indian Tribe, the applicant, corporation, or
limited liability company in which the entity
has or will have the ownership interest shall
provide the information required under this
subsection relating to the entity, except that
the entity shall not be required to provide
information regarding any natural person who
has an ownership interest in, exercises
substantial control over, or receives
substantial economic benefits from the entity.
(4) Fincen id numbers.--
(A) Issuance of fincen id number.--
(i) In general.--FinCEN shall issue a
FinCEN ID number to any individual who
requests such a number and provides
FinCEN with the information described
under subclauses (I) through (IV) of
paragraph (1)(A)(i).
(ii) Updating of information.--An
individual with a FinCEN ID number
shall submit an annual filing with
FinCEN updating any information
described under subclauses (I) through
(IV) of paragraph (1)(A)(i).
(B) Use of fincen id number in reporting
requirements.--Any person required to report
the information described under paragraph
(1)(A)(i) with respect to an individual may
instead report the FinCEN ID number of the
individual.
(C) Treatment of information submitted for
fincen id number.--For purposes of this
section, any information submitted under
subparagraph (A) shall be deemed to be
beneficial ownership information.
(5) Retention and disclosure of beneficial ownership
information by fincen.--
(A) Retention of information.--Beneficial
ownership information relating to each
corporation or limited liability company formed
under the laws of the State or Indian Tribe
shall be maintained by FinCEN until the end of
the 5-year period (or such other period of time
as the Secretary of the Treasury may, by rule,
determine) beginning on the date that the
corporation or limited liability company
terminates.
(B) Disclosure of information.--Beneficial
ownership information reported to FinCEN
pursuant to this section shall be provided by
FinCEN only upon receipt of--
(i) subject to subparagraph (C), a
request, through appropriate protocols,
by a local, Tribal, State, or Federal
law enforcement agency;
(ii) a request made by a Federal
agency on behalf of a law enforcement
agency of another country under an
international treaty, agreement, or
convention, or an order under section
3512 of title 18 or section 1782 of
title 28; or
(iii) a request made by a financial
institution, with customer consent, as
part of the institution's compliance
with due diligence requirements imposed
under the Bank Secrecy Act, the USA
PATRIOT Act, or other applicable
Federal, State, or Tribal law.
(C) Appropriate protocols.--
(i) Privacy.--The protocols described
in subparagraph (B)(i) shall--
(I) protect the privacy of
any beneficial ownership
information provided by FinCEN
to a local, Tribal, State, or
Federal law enforcement agency;
(II) ensure that a local,
Tribal, State, or Federal law
enforcement agency requesting
beneficial ownership
information has an existing
investigatory basis for
requesting such information;
(III) ensure that access to
beneficial ownership
information is limited to
authorized users at a local,
Tribal, State, or Federal law
enforcement agency who have
undergone appropriate training,
and that the identity of such
authorized users is verified
through appropriate mechanisms,
such as two-factor
authentication;
(IV) include an audit trail
of requests for beneficial
ownership information by a
local, Tribal, State, or
Federal law enforcement agency,
including, as necessary,
information concerning queries
made by authorized users at a
local, Tribal, State, or
Federal law enforcement agency;
(V) require that every local,
Tribal, State, or Federal law
enforcement agency that
receives beneficial ownership
information from FinCEN
conducts an annual audit to
verify that the beneficial
ownership information received
from FinCEN has been accessed
and used appropriately, and
consistent with this paragraph;
and
(VI) require FinCEN to
conduct an annual audit of
every local, Tribal, State, or
Federal law enforcement agency
that has received beneficial
ownership information to ensure
that such agency has requested
beneficial ownership
information, and has used any
beneficial ownership
information received from
FinCEN, appropriately, and
consistent with this paragraph.
(ii) Limitation on use.--Beneficial
ownership information provided to a
local, Tribal, State, or Federal law
enforcement agency under this paragraph
may only be used for law enforcement,
national security, or intelligence
purposes.
(b) No Bearer Share Corporations or Limited Liability
Companies.--A corporation or limited liability company formed
under the laws of a State or Indian Tribe may not issue a
certificate in bearer form evidencing either a whole or
fractional interest in the corporation or limited liability
company.
(c) Penalties.--
(1) In general.--It shall be unlawful for any person
to affect interstate or foreign commerce by--
(A) knowingly providing, or attempting to
provide, false or fraudulent beneficial
ownership information, including a false or
fraudulent identifying photograph, to FinCEN in
accordance with this section;
(B) willfully failing to provide complete or
updated beneficial ownership information to
FinCEN in accordance with this section; or
(C) knowingly disclosing the existence of a
subpoena or other request for beneficial
ownership information reported pursuant to this
section, except--
(i) to the extent necessary to
fulfill the authorized request; or
(ii) as authorized by the entity that
issued the subpoena, or other request.
(2) Civil and criminal penalties.--Any person who
violates paragraph (1)--
(A) shall be liable to the United States for
a civil penalty of not more than $10,000; and
(B) may be fined under title 18, United
States Code, imprisoned for not more than 3
years, or both.
(3) Limitation.--Any person who negligently violates
paragraph (1) shall not be subject to civil or criminal
penalties under paragraph (2).
(4) Waiver.--The Secretary of the Treasury may waive
the penalty for violating paragraph (1) if the
Secretary determines that the violation was due to
reasonable cause and was not due to willful neglect.
(5) Criminal penalty for the misuse or unauthorized
disclosure of beneficial ownership information.--The
criminal penalties provided for under section 5322
shall apply to a violation of this section to the same
extent as such criminal penalties apply to a violation
described in section 5322, if the violation of this
section consists of the misuse or unauthorized
disclosure of beneficial ownership information.
(d) Definitions.--For the purposes of this section:
(1) Applicant.--The term ``applicant'' means any
natural person who files an application to form a
corporation or limited liability company under the laws
of a State or Indian Tribe.
(2) Bank secrecy act.--The term ``Bank Secrecy Act''
means--
(A) section 21 of the Federal Deposit
Insurance Act;
(B) chapter 2 of title I of Public Law 91-
508; and
(C) this subchapter.
(3) Beneficial owner.--
(A) In general.--Except as provided in
subparagraph (B), the term ``beneficial owner''
means a natural person who, directly or
indirectly, through any contract, arrangement,
understanding, relationship, or otherwise--
(i) exercises substantial control
over a corporation or limited liability
company;
(ii) owns 25 percent or more of the
equity interests of a corporation or
limited liability company; or
(iii) receives substantial economic
benefits from the assets of a
corporation or limited liability
company.
(B) Exceptions.--The term ``beneficial
owner'' shall not include--
(i) a minor child, as defined in the
State or Indian Tribe in which the
entity is formed;
(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 derives solely from the
employment status of the person;
(iv) a person whose only interest in
a corporation or limited liability
company is through a right of
inheritance; or
(v) a creditor of a corporation or
limited liability company, unless the
creditor also meets the requirements of
subparagraph (A).
(C) Substantial economic benefits defined.--
(i) In general.--For purposes of
subparagraph (A)(ii), a natural person
receives substantial economic benefits
from the assets of a corporation or
limited liability company if the person
has an entitlement to more than a
specified percentage of the funds or
assets of the corporation or limited
liability company, which the Secretary
of the Treasury shall, by rule,
establish.
(ii) Rulemaking criteria.--In
establishing the percentage under
clause (i), the Secretary of the
Treasury shall seek to--
(I) provide clarity to
corporations and limited
liability companies with
respect to the identification
and disclosure of a natural
person who receives substantial
economic benefits from the
assets of a corporation or
limited liability company; and
(II) identify those natural
persons who, as a result of the
substantial economic benefits
they receive from the assets of
a corporation or limited
liability company, exercise a
dominant influence over such
corporation or limited
liability company.
(4) 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 or Indian
Tribe;
(B) include any non-United States entity
eligible for registration or registered to do
business as a corporation or limited liability
company under the laws of the applicable State
or Indian Tribe;
(C) do not include any entity that is--
(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 constituted,
sponsored, or chartered by a State or
Indian Tribe, a political subdivision
of a State or Indian Tribe, under an
interstate compact between two 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 bank holding company (as
defined in section 2 of the Bank
Holding Company Act of 1956 (12 U.S.C.
1841)) or a savings and loan holding
company (as defined in section 10(a) of
the Home Owners' Loan Act (12 U.S.C.
1467a(a));
(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 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 adviser (as defined in
section 202(11) of the Investment
Advisers Act of 1940 (15 U.S.C. 80b-
2(11))), if the company or adviser is
registered with the Securities and
Exchange Commission, 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 Adviser Act of
1940 (15 U.S.C. 80b-1 et seq.), or is
an investment adviser described under
section 203(l) of the Investment
Advisers Act of 1940 (15 U.S.C. 80b-
3(l));
(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) or an entity controlling,
controlled by, or under common control
of such a firm;
(xii) a public utility that provides
telecommunications service, electrical
power, natural gas, or water and sewer
services, within the United States;
(xiii) a church, charity, nonprofit
entity, or other organization that is
described in section 501(c), 527, or
4947(a)(1) of the Internal Revenue Code
of 1986, that has not been denied tax
exempt status, and that has filed the
most recently due annual information
return with the Internal Revenue
Service, if required to file such a
return;
(xiv) a financial market utility
designated by the Financial Stability
Oversight Council under section 804 of
the Dodd-Frank Wall Street Reform and
Consumer Protection Act;
(xv) an insurance producer (as
defined in section 334 of the Gramm-
Leach-Bliley Act);
(xvi) 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
$5,000,000 in gross receipts or
sales; and
(III) has an operating
presence at a physical office
within the United States; or
(xvii) any corporation or limited
liability company formed and owned by
an entity described in this clause or
in clause (i), (ii), (iii), (iv), (v),
(vi), (vii), (viii), (ix), (x), (xi),
(xii), (xiii), (xiv), (xv), or (xvi);
and
(D) do not include any individual business
concern or class of business concerns which the
Secretary of the Treasury and the Attorney
General of the United States have jointly
determined, by rule of otherwise, to be exempt
from the requirements of subsection (a), if the
Secretary and the Attorney General jointly
determine that 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
prosecute terrorism, money laundering, tax
evasion, or other misconduct.
(5) Fincen.--The term ``FinCEN'' means the Financial
Crimes Enforcement Network of the Department of the
Treasury.
(6) Indian country.--The term ``Indian country'' has
the meaning given that term in section 1151 of title
18.
(7) Indian tribe.--The term ``Indian Tribe'' has the
meaning given that term under section 102 of the
Federally Recognized Indian Tribe List Act of 1994.
(8) Personal identification card.--The term
``personal identification card'' means an
identification document issued by a State, Indian
Tribe, or local government to an individual solely for
the purpose of identification of that individual.
(9) State.--The term ``State'' means any State,
commonwealth, territory, or possession of the United
States, the District of Columbia, the Commonwealth of
Puerto Rico, the Commonwealth of the Northern Mariana
Islands, American Samoa, Guam, or the United States
Virgin Islands.
* * * * * * *
DISSENTING VIEWS
The undersigned view H.R. 2513, the Corporate Transparency
Act, as another costly burden on those entities that can least
afford it--Small Businesses.
H.R. 2513 institutes a new requirement that each
corporation and limited liability company (LLC) submit
beneficial ownership information, including names, dates of
birth, addresses, driver's license information, and Social
Security numbers directly with the Treasury Department's
Financial Crimes Enforcement Network (FinCEN) when an entity as
defined by H.R. 2513 is formed and annually thereafter. A
beneficial owner is defined by H.R. 2513 as: an individual
owning 25 percent or more in equity; an individual who
exercises substantial control over a corporation or LLC; or an
individual who receives substantial economic benefit from the
entity's assets. H.R. 2513 applies to corporations and LLCs
with fewer than 20 employees; or that generate less than
$5,000,000 in annual gross receipts or sales. Failure to comply
with H.R. 2513 could result in fines up to $10,000 or up to
three years in prison.
According to the National Federation of Independent
Businesses, nearly 4 million American small businesses will be
captured by H.R. 2513's arbitrary small business reporting
threshold. In particular, the NFIB stated, ``while large
businesses and financial institutions may have access to teams
of lawyers, accountants, and compliance experts to gather
beneficial ownership information and report it to the
government, small business owners do not. Small business owners
cannot afford accounting and legal experts to help them
understand and comply with the new federal reporting
requirements. And small business owners lack the time to track
and gather information to fill out yet more forms for the
government.''\1\
---------------------------------------------------------------------------
\1\https://www.nfib.com/assets/04-18-19-Letter-to-Representative-
Maloney-Draft-Corporate-Transparency-Act.pdf
---------------------------------------------------------------------------
Moreover, H.R. 2513 fails to repeal and replace the
Customer Due Diligence (CDD) rule, of which financial
institutions have been critical. The supposed justification for
this bill is the burden associated with implementing the CDD
rule. However, CDD will continue to co-exist with H.R. 2513.
The result could be a duplicative regulatory burden on millions
of small businesses that do not have the internal
infrastructure to meet these elevated compliance demands.
H.R. 2513 also raises significant privacy concerns.
Sensitive and personally identifiable beneficial ownership
information will be held in a new central federal repository.
The repository will be accessible to local, Tribal, State, or
Federal law enforcement agencies. However, H.R. 2513 does not
require a subpoena or warrant to access this information.
Additionally, the Corporate Transparency Act mandates that
FinCEN disclose the information to any financial institution,
as long as there is customer consent. To that end, Committee
Republicans are concerned this leaves personal information
vulnerable to unaccountable individuals and third parties
affiliated with the customer and unchecked law enforcement
agencies. Furthermore, without safeguards in place to ensure
confidentiality and safety of small business owner information,
H.R. 2513 will leave personally identifiable information
vulnerable to data breach and other cyber security risks.
Finally, Republicans remain concerned that H.R. 2513 is
based on anecdote rather than data. To date, and despite
multiple requests from the Ranking Member of the Committee and
other Financial Services Committee Republicans, the Treasury
Department, FinCEN, and the Department of Justice have failed
to provide adequate data to demonstrate the need for the
legislation. Moreover, those agencies have neglected to provide
solutions to small business and privacy concerns raised by a
bipartisan group of Committee members. Finally, in 2018,
Committee Republicans requested the Government Accountability
Office (GAO) to conduct a study on beneficial ownership and
FinCEN's CDD rule. The GAO request followed two earlier GAO
requests relating to Bank Secrecy Act and anti-money laundering
implementation, costs, and benefits. GAO has yet to finalize
these reports. Without fully understanding the small business
threshold implications and how H.R. 2513 will protect against
sophisticated money launders that can circumvent the beneficial
ownership filing requirements by forming a business trust or
partnership, both of which are exempted in H.R. 2513, Committee
Republicans believe this legislation is premature. Finally,
Republicans have yet to receive information on whether this
legislation will assist law enforcement meet its aim of
preventing, deterring, and responding to terrorism and illicit
finance.
Lance Gooden.
Scott Tipton.
Bryan Steil.
Denver Riggleman.
Tom Emmer.
Warren Davidson.
Alexander X. Mooney.
Ann Wagner.
Bill Posey.
Trey Hollingsworth.
Anthony Gonzalez.
John W. Rose.
French Hill.
Patrick T. McHenry.
Andy Barr.
Steve Stivers.
[all]
