[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 6098 Introduced in House (IH)]
111th CONGRESS
2d Session
H. R. 6098
To amend title 31, United States Code, to ensure that persons who form
corporations in the United States disclose the beneficial owners of
those corporations, in order to prevent wrongdoers from exploiting
United States corporations for criminal gain, to assist law enforcement
in detecting, preventing, and punishing terrorism, money laundering,
and other misconduct involving United States corporations, and for
other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
August 10, 2010
Mrs. Maloney (for herself and Mr. Frank of Massachusetts) introduced
the following bill; which was referred to the Committee on Financial
Services
_______________________________________________________________________
A BILL
To amend title 31, United States Code, to ensure that persons who form
corporations in the United States disclose the beneficial owners of
those corporations, in order to prevent wrongdoers from exploiting
United States corporations for criminal gain, to assist law enforcement
in detecting, preventing, and punishing terrorism, money laundering,
and other misconduct involving United States corporations, and for
other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Incorporation Transparency and Law
Enforcement Assistance Act''.
SEC. 2. FINDINGS.
Congress finds the following:
(1) Nearly 2,000,000 corporations and limited liability
companies are being formed under the laws of the States each
year.
(2) Very few States obtain meaningful information about the
beneficial owners of the corporations and limited liability
companies formed under their laws.
(3) A person forming a corporation or limited liability
company within the United States typically provides less
information to the State of incorporation than is needed to
obtain a bank account or driver's license and typically does
not name a single beneficial owner.
(4) Criminals have exploited the weaknesses in State
formation procedures to conceal their identities when forming
corporations or limited liability companies in the United
States, and have then used the newly created entities to commit
crimes affecting interstate and international commerce such as
terrorism, drug trafficking, money laundering, tax evasion,
securities fraud, financial fraud, and acts of foreign
corruption.
(5) Law enforcement efforts to investigate corporations and
limited liability companies suspected of committing crimes have
been impeded by the lack of available beneficial ownership
information, as documented in reports and testimony by
officials from the Department of Justice, the Department of
Homeland Security, the Financial Crimes Enforcement Network of
the Department of the Treasury, the Internal Revenue Service,
and the Government Accountability Office, and others.
(6) In July 2006, a leading international anti-money
laundering organization, the Financial Action Task Force on
Money Laundering (in this section referred to as the ``FATF''),
of which the United States is a member, issued a report that
criticizes the United States for failing to comply with a FATF
standard on the need to collect beneficial ownership
information and urged the United States to correct this
deficiency by July 2008.
(7) In response to the FATF report, the United States has
repeatedly urged the States to strengthen their incorporation
practices by obtaining beneficial ownership information for the
corporations and limited liability companies formed under the
laws of such States.
(8) Many States have established automated procedures that
allow a person to form a new corporation or limited liability
company within the State within 24 hours of filing an online
application, without any prior review of the application by a
State official. In exchange for a substantial fee, 2 States
will form a corporation within 1 hour of a request.
(9) Dozens of Internet websites highlight the anonymity of
beneficial owners allowed under the incorporation practices of
some States, point to those practices as a reason to
incorporate in those States, and list those States together
with offshore jurisdictions as preferred locations for the
formation of new corporations, essentially providing an open
invitation to criminals and other wrongdoers to form entities
within the United States.
(10) In contrast to practices in the United States, all 27
countries in the European Union are required to have formation
agents identify the beneficial owners of the corporations
formed under the laws of the country.
(11) To reduce the vulnerability of the United States to
wrongdoing by United States corporations and limited liability
companies with hidden owners, to protect interstate and
international commerce from criminals misusing United States
corporations and limited liability companies, to strengthen law
enforcement investigations of suspect corporations and limited
liability companies, to set minimum standards for and level the
playing field among State incorporation practices, and to bring
the United States into compliance with its international anti-
money laundering obligations, Federal legislation is needed to
require the States to obtain beneficial ownership information
for the corporations and limited liability companies formed
under the laws of such States.
SEC. 3. TRANSPARENT INCORPORATION PRACTICES.
(a) Transparent Incorporation Practices.--
(1) In general.--Chapter 53 of title 31, United States
Code, is amended by inserting after section 5332 the following
new section:
``Sec. 5333. Transparent incorporation practices
``(a) Reporting Requirements.--
``(1) In general.--Not later than October 1, 2012, the
Secretary of the Treasury shall issue regulations requiring
each corporation and limited liability company formed in a
State that does not have an incorporation system described
under subsection (b) to file with the Secretary such
information as the corporation or limited liability company
would be required to provide the State if such State had an
incorporation system described under subsection (b).
``(2) Disclosure of beneficial ownership information.--
Beneficial ownership information reported to the Secretary of
the Treasury pursuant to paragraph (1) shall be provided by the
Secretary of the Treasury upon receipt of--
``(A) a civil or criminal subpoena or summons from
a State agency, Federal agency, or congressional
committee or subcommittee requesting such information;
or
``(B) a written request made by a Federal agency on
behalf of another country under an international
treaty, agreement, or convention, or section 1782 of
title 28, United States Code.
``(b) Incorporation System.--With respect to a State, an
incorporation system is described under this subsection if it meets the
following requirements:
``(1) Each applicant to form a corporation or limited
liability company under the laws of the State is required to
provide to the State during the formation process a list of the
beneficial owners of the corporation or limited liability
company that--
``(A) except as provided in paragraph (6),
identifies each beneficial owner by--
``(i) name;
``(ii) current address; and
``(iii) non-expired passport issued by the
United States or a non-expired drivers license
issued by a State; and
``(B) if any beneficial owner exercises control
over the corporation or limited liability company
through another legal entity, such as a corporation,
partnership, or trust, identifies each such legal
entity and each such beneficial owner who will use that
entity to exercise control over the corporation or
limited liability company.
``(2) Each corporation or limited liability company formed
under the laws of the State is required by the State to update
the list of the beneficial owners of the corporation or limited
liability company by providing the information described in
paragraph (1) to the State not later than 60 days after the
date of any change in the list of beneficial owners or the
information required to be provided relating to each beneficial
owner.
``(3) Beneficial ownership information relating to each
corporation or limited liability company formed under the laws
of the State is required to be maintained by the State until
the end of the 5-year period beginning on the date that the
corporation or limited liability company terminates under the
laws of the State.
``(4) Beneficial ownership information relating to each
corporation or limited liability company formed under the laws
of the State shall be provided by the State upon receipt of--
``(A) a civil or criminal subpoena or summons from
a State agency, Federal agency, or congressional
committee or subcommittee requesting such information;
or
``(B) a written request made by a Federal agency on
behalf of another country under an international
treaty, agreement, or convention, or section 1782 of
title 28, United States Code.
``(5) A corporation or limited liability company formed
under the laws of the State may not issue a certificate in
bearer form evidencing either a whole or fractional interest in
the corporation or limited liability company.
``(6) If any beneficial owner of a corporation or limited
liability company formed under the laws of the State is not a
United States citizen or a lawful permanent resident of the
United States, each application described in paragraph (1) and
each update described in paragraph (2) shall include a written
certification by a formation agent residing in the State that
the formation agent--
``(A) has verified the name, address, and identity
of each beneficial owner that is not a United States
citizen or a lawful permanent resident of the United
States;
``(B) has obtained for each beneficial owner that
is not a United States citizen or a lawful permanent
resident of the United States a legible and credible
copy of the pages of a government-issued passport
bearing a photograph and unique identifying information
for the beneficial owner;
``(C) will provide proof of the verification
described in subparagraph (A) and the photograph
described in subparagraph (B) upon request; and
``(D) will retain information and documents
relating to the verification described in subparagraph
(A) and the photograph described in subparagraph (B)
until the end of the 5-year period beginning on the
date that the corporation or limited liability company
terminates, under the laws of the State.
``(c) Penalties.--
``(1) In general.--It shall be unlawful for--
``(A) any person to affect interstate or foreign
commerce by--
``(i) knowingly providing, or attempting to
provide, false or fraudulent beneficial
ownership information, including a false or
fraudulent identifying photograph, to a State
or licensed formation agent under State law in
accordance with this section;
``(ii) willfully failing to provide
complete or updated beneficial ownership
information to a State or licensed formation
agent under State law in accordance with this
section; or
``(iii) knowingly disclosing the existence
of a subpoena, summons, or other request for
beneficial ownership information from a law
enforcement agency under State law in
accordance with this section without written
authorization from the law enforcement agency;
or
``(B) any licensed formation agent to affect
interstate or foreign commerce by willfully failing to
obtain or maintain credible and legible beneficial
ownership information, including any required
identifying photograph, under State law in accordance
with this section, or willfully failing to provide
beneficial ownership information in response to a
subpoena, summons, or other request from a law
enforcement agency in accordance with this section.
``(2) Civil and criminal penalties.--In addition to any
civil or criminal penalty that may be imposed by a State, any
person who violates paragraph (1) shall be liable to the United
States for a civil penalty of not more than $10,000.
``(d) Funding Authorization.--To carry out this section, during the
3-year period beginning on the date of enactment of this section, upon
application by a State, the Secretary shall make available to such
State a reasonable amount of funding from the Department of the
Treasury Forfeiture Fund established under section 9703(a) of title 31,
United States Code.
``(e) Compliance Report.--Nothing in this section authorizes the
Secretary to withhold from a State any funding otherwise available to
the State because of a failure by that State to comply with this
section. Not later than June 1, 2014, the Comptroller General of the
United States shall submit to the Committee on Financial Services of
the House of Representatives and the Committee on Homeland Security and
Governmental Affairs of the Senate a report--
``(1) identifying which States obtain beneficial ownership
information as described in this section;
``(2) with respect to each State that does not obtain such
information, whether corporations and limited liability
companies formed under the laws of such State are in compliance
with this section and providing the specified beneficial
ownership information to the Secretary; and
``(3) whether the Department of the Treasury is in
compliance with this section and, if not, what steps it must
take to come into compliance with this section.
``(f) Definitions.--For the purposes of this section:
``(1) Beneficial owner.--
``(A) In general.--Except as provided in
subparagraph (B), the term `beneficial owner' means a
natural person who, directly or indirectly--
``(i) exercises substantial control over a
corporation or limited liability company; or
``(ii) has a substantial interest in or
receives substantial economic benefits from the
assets of the corporation or limited liability
company described in clause (i).
``(B) Exceptions.--The term `beneficial owner' does
not include--
``(i) a minor child;
``(ii) a person acting as a nominee,
intermediary, custodian, or agent on behalf of
another person;
``(iii) a person acting solely as an
employee of a corporation or limited liability
company, and whose control over or economic
benefits from the corporation or limited
liability company derive solely from the
employment status of the individual;
``(iv) a person whose only interest in the
corporation or limited liability company is
through a right of inheritance, unless the
individual also meets the requirements of
subparagraph (A); or
``(v) a creditor of a corporation or
limited liability company, unless the
individual also meets the requirements of
subparagraph (A).
``(C) Limitation.--A beneficial owner meeting the
requirements for an entity under paragraph (2)(B) may
provide the name of the entity instead of the name of a
natural person.
``(2) Corporation; limited liability company.--The terms
`corporation' and `limited liability company'--
``(A) have the meanings given such terms under the
laws of the applicable State;
``(B) do not include any entity that is, and
discloses in the application by the entity to form
under the laws of the State or, if the entity was
formed before the date of the enactment of this
section, in a filing with the State under State law--
``(i) a business concern that is an issuer
of a class of securities registered under
section 12 of the Securities Exchange Act of
1934 (15 U.S.C. 781) or that is required to
file reports under section 15(d) of that Act
(15 U.S.C. 78o(d));
``(ii) a business concern formed by a
State, a political subdivision of a State,
under an interstate compact between 2 or more
States, by a department or agency of the United
States, or under the laws of the United States;
``(iii) a depository institution (as
defined in section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813));
``(iv) a credit union (as defined in
section 101 of the Federal Credit Union Act (12
U.S.C. 1752));
``(v) a financial holding company (as
defined in section 2 of the Bank Holding
Company Act of 1956 (12 U.S.C. 1841));
``(vi) a broker or dealer (as defined in
section 3 of the Securities Exchange Act of
1934 (15 U.S.C. 78c)) that is registered under
section 15 of the Securities and Exchange Act
of 1934 (15 U.S.C. 78o);
``(vii) an exchange or clearing agency (as
defined in section 3 of the Securities Exchange
Act of 1934 (15 U.S.C. 78c)) that is registered
under section 6 or 17A of the Securities
Exchange Act of 1934 (15 U.S.C. 78f and 78q-1);
``(viii) an investment company (as defined
in section 3 of the Investment Company Act of
1940 (15 U.S.C. 80a-3)) or an investment
advisor (as defined in section 202(11) of the
Investment Advisors Act of 1940 (15 U.S.C. 80b-
2(11)), if the company or adviser is registered
with the Securities and Exchange Commission, or
has filed an application for registration which
has not been denied, under the Investment
Company Act of 1940 (15 U.S.C. 80a-1 et seq.)
or the Investment Advisor Act of 1940 (15
U.S.C. 80b-1 et seq.);
``(ix) an insurance company (as defined in
section 2 of the Investment Company Act of 1940
(15 U.S.C. 80a-2));
``(x) a registered entity (as defined in
section 1a of the Commodity Exchange Act (7
U.S.C. 1a)), or a futures commission merchant,
introducing broker, commodity pool operator, or
commodity trading advisor (as defined in
section 1a of the Commodity Exchange Act (7
U.S.C. 1a)) that is registered with the
Commodity Futures Trading Commission;
``(xi) a public accounting firm registered
in accordance with section 102 of the Sarbanes-
Oxley Act (15 U.S.C. 7212);
``(xii) a public utility that provides
telecommunications service, electrical power,
natural gas, or water and sewer services,
within the United States;
``(xiii) a charity or nonprofit entity that
is described in section 501(c), 527, or
4947(a)(1) of the Internal Revenue Code of
1986, has not been denied tax exempt status,
and has filed the most recently due annual
information return with the Internal Revenue
Service, if required to file such a return;
``(xiv) any business concern that--
``(I) employs more than 20
employees on a full time basis in the
United States;
``(II) files income tax returns in
the United States demonstrating more
than $10,000,000 in gross receipts or
sales; and
``(III) has an operating presence
at a physical office within the United
States; or
``(xv) any corporation or limited liability
company formed and owned by an entity described
in clause (i), (ii), (iii), (iv), (v), (vi),
(vii), (viii), (ix), (x), (xi), (xii), (xiii),
or (xiv); and
``(C) do not include any individual business
concern or class of business concerns which the
Secretary of the Treasury, with the written concurrence
of the Attorney General of the United States, has
determined in writing should be exempt from the
requirements of subsection (a), because requiring
beneficial ownership information from the business
concern would not serve the public interest and would
not assist law enforcement efforts to detect, prevent,
or punish terrorism, money laundering, tax evasion, or
other misconduct.
``(3) Formation agent.--The term `formation agent' means a
person who, for compensation, acts on behalf of another person
to assist in the formation of a corporation or limited
liability company under the laws of a State.''.
(2) Rulemaking.--To carry out this Act and the amendments
made by this Act, the Secretary of the Treasury, in
consultation with the Secretary of Homeland Security and the
Attorney General of the United States, may issue guidance or a
rule to clarify application of the definitions added by this
Act, or to specify how to verify beneficial ownership
information.
(3) Conforming amendments.--Title 31, United States Code,
is amended--
(A) in section 5321(a)--
(i) in paragraph (1), by striking
``sections 5314 and 5315'' each place it
appears and inserting ``sections 5314, 5315,
and 5333''; and
(ii) in paragraph (6), by inserting
``(except section 5333)'' after ``subchapter''
each place it appears; and
(B) in section 5322, by striking ``section 5315 or
5324'' each place it appears and inserting ``section
5315, 5324, or 5333''.
(4) Table of contents.--The table of contents of Chapter 53
of title 31, United States Code, is amended by inserting after
the item relating to section 5332 the following:
``Sec. 5333. Transparent incorporation practices.''.
(5) Restrictions on public access.--A State may--
(A) restrict public access to all or any portion of
the beneficial ownership information provided to the
State as described under section 5332 of title 31,
United States Code, as added by this Act; and
(B) by statute, regulation, order, or
interpretation adopted or issued by the State after the
date of enactment of this Act, provide for public
access to all or any portion of such information.
(6) No duty of verification.--This Act and the amendments
made by this Act do not impose any obligation on a State to
verify the name, address, or identity of a beneficial owner
whose information is submitted to such State under section 5332
of title 31, United States Code, as added by this Act.
(b) Anti-Money Laundering Obligations of Formation Agents.--
(1) In general.--Section 5312(a)(2) of title 31, United
States Code, is amended--
(A) in subparagraph (Y), by striking ``or'' at the
end;
(B) by redesignating subparagraph (Z) as
subparagraph (AA); and
(C) by inserting after subparagraph (Y) the
following:
``(Z) any person involved in forming a corporation
or limited liability company; or''.
(2) Deadline for anti-money laundering rule for formation
agents.--
(A) Proposed rule.--Not later than 90 days after
the date of enactment of this Act, the Secretary of the
Treasury, in consultation with the Attorney General of
the United States and the Commissioner of the Internal
Revenue Service, shall publish a proposed rule in the
Federal Register requiring persons described in section
5312(a)(2)(Z) of title 31, United States Code, as
amended by this subsection, to establish anti-money
laundering programs under subsection (h) of section
5318 of that title.
(B) Final rule.--Not later than 270 days after the
date of enactment of this Act, the Secretary of the
Treasury shall publish the rule described in this
subsection in final form in the Federal Register.
(C) Exclusions.--Any rule promulgated under this
subsection shall exclude from the category of persons
involved in forming a corporation or limited liability
company--
(i) any government agency; and
(ii) any attorney or law firm that uses a
paid formation agent operating within the
United States to form the corporation or
limited liability company.
SEC. 4. STUDY AND REPORT BY GOVERNMENT ACCOUNTABILITY OFFICE.
Not later than 1 year after the date of enactment of this Act, the
Comptroller General of the United States shall conduct a study and
submit to the Congress a report--
(1) identifying each State that has procedures that enable
persons to form or register under the laws of the State
partnerships, trusts, or other legal entities, and the nature
of those procedures;
(2) identifying each State that requires persons seeking to
form or register partnerships, trusts, or other legal entities
under the laws of the State to provide information about the
beneficial owners (as that term is defined in section
5333(d)(1) of title 31, United States Code, as added by this
Act) or beneficiaries of such entities, and the nature of the
required information;
(3) evaluating whether the lack of available beneficial
ownership information for partnerships, trusts, or other legal
entities--
(A) raises concerns about the involvement of such
entities in terrorism, money laundering, tax evasion,
securities fraud, or other misconduct; and
(B) has impeded investigations into entities
suspected of such misconduct; and
(4) evaluating whether the failure of the United States to
require beneficial ownership information for partnerships and
trusts formed or registered in the United States has elicited
international criticism and what steps, if any, the United
States has taken or is planning to take in response.
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