1.This Act may be cited as
the Incorporation Transparency and Law
Enforcement Assistance Act
.
2.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.
3.Transparent
incorporation practices
(a)Transparent
incorporation practices
(1)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:
2009.Transparent
incorporation practices
(a)
(1)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 2012, 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 ownersTo 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 2012, 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 informationIn 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)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)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, 2013, 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)In
this section:
(1)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 companyThe 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)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)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)
(1)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)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.
4.Anti-money
laundering obligations of formation agents
(a)Anti-money
laundering obligations of formation agentsSection 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)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)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.
5.Study and report
by Government Accountability OfficeNot 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.