[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 2956 Introduced in Senate (IS)]
110th CONGRESS
2d Session
S. 2956
To ensure that persons who form corporations in the United States
disclose the beneficial owners of those corporations, in order to
prevent wrongdoers from exploiting United States corporations for
criminal gain, to assist law enforcement in detecting, preventing, and
punishing terrorism, money laundering, and other misconduct involving
United States corporations, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
May 1, 2008
Mr. Levin (for himself, Mr. Coleman, and Mr. Obama) introduced the
following bill; which was read twice and referred to the Committee on
Homeland Security and Governmental Affairs
_______________________________________________________________________
A BILL
To ensure that persons who form corporations in the United States
disclose the beneficial owners of those corporations, in order to
prevent wrongdoers from exploiting United States corporations for
criminal gain, to assist law enforcement in detecting, preventing, and
punishing terrorism, money laundering, and other misconduct involving
United States corporations, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Incorporation Transparency and Law
Enforcement Assistance Act''.
SEC. 2. FINDINGS.
Congress finds the following:
(1) Nearly 2,000,000 corporations and limited liability
companies are being formed under the laws of the States each
year.
(2) Very few States obtain meaningful information about the
beneficial owners of the corporations and limited liability
companies formed under their laws.
(3) A person forming a corporation or limited liability
company within the United States typically provides less
information to the State of incorporation than is needed to
obtain a bank account or driver's license and typically does
not name a single beneficial owner.
(4) Criminals have exploited the weaknesses in State
formation procedures to conceal their identities when forming
corporations or limited liability companies in the United
States, and have then used the newly created entities to commit
crimes affecting interstate and international commerce such as
terrorism, drug trafficking, money laundering, tax evasion,
securities fraud, financial fraud, and acts of foreign
corruption.
(5) Law enforcement efforts to investigate corporations and
limited liability companies suspected of committing crimes have
been impeded by the lack of available beneficial ownership
information, as documented in reports and testimony by
officials from the Department of Justice, the Department of
Homeland Security, the Financial Crimes Enforcement Network of
the Department of the Treasury, the Internal Revenue Service,
and the Government Accountability Office, and others.
(6) In July 2006, a leading international anti-money
laundering organization, the Financial Action Task Force on
Money Laundering (in this section referred to as the ``FATF''),
of which the United States is a member, issued a report that
criticizes the United States for failing to comply with a FATF
standard on the need to collect beneficial ownership
information and urged the United States to correct this
deficiency by July 2008.
(7) In response to the FATF report, the United States has
repeatedly urged the States to strengthen their incorporation
practices by obtaining beneficial ownership information for the
corporations and limited liability companies formed under the
laws of such States.
(8) Many States have established automated procedures that
allow a person to form a new corporation or limited liability
company within the State within 24 hours of filing an online
application, without any prior review of the application by a
State official. In exchange for a substantial fee, 2 States
will form a corporation within 1 hour of a request.
(9) Dozens of Internet websites highlight the anonymity of
beneficial owners allowed under the incorporation practices of
some States, point to those practices as a reason to
incorporate in those States, and list those States together
with offshore jurisdictions as preferred locations for the
formation of new corporations, essentially providing an open
invitation to criminals and other wrongdoers to form entities
within the United States.
(10) In contrast to practices in the United States, all
countries in the European Union are required to identify the
beneficial owners of the corporations they form.
(11) To reduce the vulnerability of the United States to
wrongdoing by United States corporations and limited liability
companies with unknown owners, to protect interstate and
international commerce from criminals misusing United States
corporations and limited liability companies, to strengthen law
enforcement investigations of suspect corporations and limited
liability companies, to set minimum standards for and level the
playing field among State incorporation practices, and to bring
the United States into compliance with its international anti-
money laundering obligations, Federal legislation is needed to
require the States to obtain beneficial ownership information
for the corporations and limited liability companies formed
under the laws of such States.
SEC. 3. TRANSPARENT INCORPORATION PRACTICES.
(a) Transparent Incorporation Practices.--
(1) In general.--Subtitle A of title XX of the Homeland
Security Act of 2002 (6 U.S.C. 601 et seq.) is amended by
adding at the end the following:
``SEC. 2009. TRANSPARENT INCORPORATION PRACTICES.
``(a) Incorporation Systems.--
``(1) In general.--To protect the security of the United
States, each State that receives funding from the Department
under section 2004 shall, not later than the beginning of
fiscal year 2011, use an incorporation system that meets the
following requirements:
``(A) Each applicant to form a corporation or
limited liability company under the laws of the State
is required to provide to the State during the
formation process a list of the beneficial owners of
the corporation or limited liability company that--
``(i) identifies each beneficial owner by
name and current address; and
``(ii) if any beneficial owner exercises
control over the corporation or limited
liability company through another legal entity,
such as a corporation, partnership, or trust,
identifies each such legal entity and each such
beneficial owner who will use that entity to
exercise control over the corporation or
limited liability company.
``(B) Each corporation or limited liability company
formed under the laws of the State is required by the
State to update the list of the beneficial owners of
the corporation or limited liability company by
providing the information described in subparagraph
(A)--
``(i) in an annual filing with the State;
or
``(ii) if no annual filing is required
under the law of that State, each time a change
is made in the beneficial ownership of the
corporation or limited liability company.
``(C) Beneficial ownership information relating to
each corporation or limited liability company formed
under the laws of the State is required to be
maintained by the State until the end of the 5-year
period beginning on the date that the corporation or
limited liability company terminates under the laws of
the State.
``(D) Beneficial ownership information relating to
each corporation or limited liability company formed
under the laws of the State shall be provided by the
State upon receipt of--
``(i) a civil or criminal subpoena or
summons from a State agency, Federal agency, or
congressional committee or subcommittee
requesting such information; or
``(ii) a written request made by a Federal
agency on behalf of another country under an
international treaty, agreement, or convention,
or section 1782 of title 28, United States
Code.
``(2) Non-united states beneficial owners.--To further
protect the security of the United States, each State that
accepts funding from the Department under section 2004 shall,
not later than the beginning of fiscal year 2011, require that,
if any beneficial owner of a corporation or limited liability
company formed under the laws of the State is not a United
States citizen or a lawful permanent resident of the United
States, each application described in paragraph (1)(A) and each
update described in paragraph (1)(B) shall include a written
certification by a formation agent residing in the State that
the formation agent--
``(A) has verified the name, address, and identity
of each beneficial owner that is not a United States
citizen or a lawful permanent resident of the United
States;
``(B) has obtained for each beneficial owner that
is not a United States citizen or a lawful permanent
resident of the United States a copy of the page of the
government-issued passport on which a photograph of the
beneficial owner appears;
``(C) will provide proof of the verification
described in subparagraph (A) and the photograph
described in subparagraph (B) upon request; and
``(D) will retain information and documents
relating to the verification described in subparagraph
(A) and the photograph described in subparagraph (B)
until the end of the 5-year period beginning on the
date that the corporation or limited liability company
terminates, under the laws of the State.
``(b) Penalties for False Beneficial Ownership Information.--In
addition to any civil or criminal penalty that may be imposed by a
State, any person who affects interstate or foreign commerce by
knowingly providing, or attempting to provide, false beneficial
ownership information to a State, by intentionally failing to provide
beneficial ownership information to a State upon request, or by
intentionally failing to provide updated beneficial ownership
information to a State--
``(1) shall be liable to the United States for a civil
penalty of not more than $10,000; and
``(2) may be fined under title 18, United States Code,
imprisoned for not more than 3 years, or both.
``(c) Funding Authorization.--To carry out this section--
``(1) a State may use all or a portion of the funds made
available to the State under section 2004; and
``(2) the Administrator may use funds appropriated to carry
out this title, including unobligated or reprogrammed funds, to
enable a State to obtain and manage beneficial ownership
information for the corporations and limited liability
companies formed under the laws of the State, including by
funding measures to assess, plan, develop, test, or implement
relevant policies, procedures, or system modifications.
``(d) State Compliance Report.--Nothing in this section authorizes
the Administrator to withhold from a State any funding otherwise
available to the State under section 2004 because of a failure by that
State to comply with this section. Not later than June 1, 2012, the
Comptroller General of the United States shall submit to the Committee
on Homeland Security and Governmental Affairs of the Senate and the
Committee on Homeland Security of the House of Representatives a report
identifying which States are in compliance with this section and, for
any State not in compliance, what measures must be taken by that State
to achieve compliance with this section.
``(e) Definitions.--In this section:
``(1) Beneficial owner.--The term `beneficial owner' means
an individual who has a level of control over, or entitlement
to, the funds or assets of a corporation or limited liability
company that, as a practical matter, enables the individual,
directly or indirectly, to control, manage, or direct the
corporation or limited liability company.
``(2) Corporation; limited liability company.--The terms
`corporation' and `limited liability company'--
``(A) have the meanings given such terms under the
laws of the applicable State;
``(B) do not include any 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)), or any
corporation or limited liability company formed by such
a business concern;
``(C) do not include any business concern formed by
a State, a political subdivision of a State, under an
interstate compact between 2 or more States, by a
department or agency of the United States, or under the
laws of the United States; and
``(D) do not include any individual business
concern or class of business concerns which a State,
after obtaining the written concurrence of the
Administrator and the Attorney General of the United
States, has determined in writing should be exempt from
the requirements of subsection (a), because requiring
beneficial ownership information from the business
concern would not serve the public interest and would
not assist law enforcement efforts to detect, prevent,
or punish terrorism, money laundering, tax evasion, or
other misconduct.
``(3) Formation agent.--The term `formation agent' means a
person who, for compensation, acts on behalf of another person
to assist in the formation of a corporation or limited
liability company under the laws of a State.''.
(2) Table of contents.--The table of contents in section 1
of the Homeland Security Act of 2002 (6 U.S.C. 101 et seq.) is
amended by inserting after the item relating to section 2008
the following:
``Sec. 2009. Transparent incorporation practices.''.
(b) Effect on State Law.--
(1) In general.--This Act and the amendments made by this
Act do not supersede, alter, or affect any statute, regulation,
order, or interpretation in effect in any State, except where a
State has elected to receive funding from the Department of
Homeland Security under section 2004 of the Homeland Security
Act of 2002 (6 U.S.C. 605), and then only to the extent that
such State statute, regulation, order, or interpretation is
inconsistent with this Act or an amendment made by this Act.
(2) Not inconsistent.--A State statute, regulation, order,
or interpretation is not inconsistent with this Act or an
amendment made by this Act if such statute, regulation, order,
or interpretation--
(A) requires additional information, more
frequently updated information, or additional measures
to verify information related to a corporation, limited
liability company, or beneficial owner, than is
specified under this Act or an amendment made by this
Act; or
(B) imposes additional limits on public access to
the beneficial ownership information obtained by the
State than is specified under this Act or an amendment
made by this Act.
SEC. 4. ANTI-MONEY LAUNDERING OBLIGATIONS OF FORMATION AGENTS.
(a) Anti-Money Laundering Obligations of Formation Agents.--Section
5312(a)(2) of title 31, United States Code, is amended--
(1) in subparagraph (Y), by striking ``or'' at the end;
(2) by redesignating subparagraph (Z) as subparagraph (AA);
and
(3) by inserting after subparagraph (Y) the following:
``(Z) any person involved in forming a corporation,
limited liability company, partnership, trust, or other
legal entity; or''.
(b) Deadline for Anti-Money Laundering Rule for Formation Agents.--
(1) Proposed rule.--Not later than 90 days after the date
of enactment of this Act, the Secretary of the Treasury, in
consultation with the Attorney General of the United States,
the Secretary of Homeland Security, and the Commissioner of the
Internal Revenue Service, shall publish a proposed rule in the
Federal Register requiring persons described in section
5312(a)(2)(Z) of title 31, United States Code, as amended by
this section, to establish anti-money laundering programs under
subsection (h) of section 5318 of that title.
(2) Final rule.--Not later than 270 days after the date of
enactment of this Act, the Secretary of the Treasury shall
publish the rule described in this subsection in final form in
the Federal Register.
SEC. 5. STUDY AND REPORT BY GOVERNMENT ACCOUNTABILITY OFFICE.
Not later than 1 year after the date of enactment of this Act, the
Comptroller General of the United States shall conduct a study and
submit to the Committee on Homeland Security and Governmental Affairs
of the Senate and the Committee on Homeland Security of the House of
Representatives a report--
(1) identifying each State that has procedures that enable
persons to form or register under the laws of the State
partnerships, trusts, or other legal entities, and the nature
of those procedures;
(2) identifying each State that requires persons seeking to
form or register partnerships, trusts, or other legal entities
under the laws of the State to provide information about the
beneficial owners (as that term is defined in section 2009 of
the Homeland Security Act of 2002, as added by this Act) or
beneficiaries of such entities, and the nature of the required
information;
(3) evaluating whether the lack of available beneficial
ownership information for partnerships, trusts, or other legal
entities--
(A) raises concerns about the involvement of such
entities in terrorism, money laundering, tax evasion,
securities fraud, or other misconduct; and
(B) has impeded investigations into entities
suspected of such misconduct; and
(4) evaluating whether the failure of the United States to
require beneficial ownership information for partnerships and
trusts formed or registered in the United States has elicited
international criticism and what steps, if any, the United
States has taken or is planning to take in response.
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