[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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