[Congressional Record Volume 154, Number 71 (Thursday, May 1, 2008)]
[Senate]
[Pages S3704-S3708]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. LEVIN (for himself, Mr. Coleman, and Mr. Obama):
  S. 2956. 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; to the 
Committee on Homeland Security and Governmental Affairs.
  Mr. LEVIN. Mr. President, I am introducing today, with my colleagues 
Senator Coleman and Senator Obama, the Incorporation Transparency and 
Law Enforcement Assistance Act. This bill tackles a longstanding 
homeland security problem involving inadequate State incorporation 
practices that leave this country unnecessarily vulnerable to 
terrorists, criminals, and other wrongdoers, hinder law enforcement, 
and damage the international stature of the U.S.
  The problem is straightforward. Each year, the States allow persons 
to form nearly 2 million corporations and limited liability companies 
in this country without knowing--or even asking--who the beneficial 
owners are behind those corporations. Right now, a person forming a 
U.S. corporation or limited liability company, LLC, provides less 
information to the State than is required to open a bank account or 
obtain a driver's license. Instead, States routinely permit persons to 
form corporations and LLCs under State laws without disclosing the 
names of any of the people who will control or benefit from them.
  It is a fact that criminals are exploiting this weakness in our State 
incorporation practices. They are forming new U.S. corporations and 
LLCs, and using these entities to commit crimes ranging from terrorism 
to drug trafficking, money laundering, tax evasion, financial fraud, 
and corruption. Law enforcement authorities investigating these crimes 
have complained loudly for years about the lack of beneficial ownership 
information.
  Last year, for example, the U.S. Department of the Treasury sent a 
letter to the States stating: ``the lack of transparency with respect 
to the individuals who control privately held for-profit legal entities 
created in the U.S. continues to represent a substantial vulnerability 
in the U.S. anti-money laundering/counter terrorist financing, AML/CFT, 
regime. . . . [T]he use of U.S. companies to mask the identity of 
criminals presents an ongoing and substantial problem . . . for U.S. 
and global law enforcement authorities.''
  Last month, Secretary Michael Chertoff, head of the U.S. Department 
of Homeland Security, wrote the following: ``In countless 
investigations, where the criminal targets utilize shell corporations, 
the lack of law enforcement's ability to gain access to true beneficial 
ownership information slows, confuses or impedes the efforts by 
investigators to follow criminal proceeds. This is the case in 
financial fraud, terrorist financing and money laundering 
investigations. . . . It is imperative that States maintain beneficial 
ownership information while the company is active and to have a set 
time frame for preserving those records. . . . Shell companies can be 
sold and resold to several beneficial owners in the course of a year or 
less. . . . By maintaining records not only of the initial beneficial 
ownership but of the subsequent beneficial owners, States will provide 
law enforcement the tools necessary to clearly identify the individuals 
who utilized the company at any given period of time.''

  These types of complaints by U.S. law enforcement, their pleas for 
assistance, and their warnings about the dangers of anonymous U.S. 
corporations operating here and abroad are catalogued in a stack of 
reports and hearing testimony 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 others.
  To add insult to injury, our law enforcement officials have too often 
had to stand silent when asked by their counterparts in other countries 
for information about who owns a U.S. corporation committing crimes in 
their jurisdictions. The reality is that the United States is as bad as 
any offshore jurisdiction when it comes to responding to those 
requests--we can't answer them because we don't have the information.
  In 2006, the leading international anti-money laundering body in the 
world, the Financial Action Task Force on Money Laundering--known as 
FATF--issued a report criticizing the U.S. for its failure to comply 
with a FATF standard requiring countries to obtain beneficial ownership 
information for the corporations formed under their laws. This standard 
is one of 40 FATF standards that this country has publicly committed 
itself to implementing as part of its efforts to promote strong anti-
money laundering laws around the world.
  FATF gave the U.S. 2 years, until July 2008, to make progress toward 
coming into compliance with the FATF standard on beneficial ownership 
information. That deadline is right around the comer, but we have yet 
to make any real progress. That is another reason why we are 
introducing this bill today. Enacting the bill would bring the U.S. 
into compliance with the FATF standard by requiring the States to 
obtain beneficial ownership information for the corporations formed 
under their laws. It would ensure that the U.S. met its international 
commitment to comply with FATF anti-money laundering standards.
  The bill being introduced today is the product of years of work by 
the U.S. Senate Permanent Subcommittee on Investigations, on which I, 
Senator Coleman, and Senator Obama serve together. As long ago as 2000, 
the Government Accountability Office, GAO, at my request, conducted an 
investigation and released a report entitled, Suspicious Banking 
Activities: Possible Money Laundering by U.S. Corporations Formed for 
Russian Entities. This report revealed that one person was able to set 
up more than 2,000 Delaware shell corporations and, without disclosing 
the identity of the beneficial owners, open U.S. bank accounts for 
those corporations, which then collectively moved about $1.4 billion 
through the accounts. It is one of the earliest Government reports to 
give some sense of the law enforcement problems caused by U.S. 
corporations with unknown owners. It sounded the alarm sounded 8 years 
ago, but to little effect.
  In April 2006, in response to a Levin-Coleman request, GAO released a 
report entitled, Company Formations: Minimal Ownership Information Is 
Collected and Available, which reviewed the corporate formation laws in 
all 50 States. GAO disclosed that the vast majority of the States don't 
collect any information at all on the beneficial owners of the 
corporations and LLCs formed under their laws. The report also found 
that many States have established automated procedures that allow a 
person to form a new corporation or LLC within the State within 24 
hours of filing an online application without any prior review of that 
application by a State official. In exchange for a substantial fee, two 
States will even form a corporation or LLC within one hour of a 
request. After examining these State incorporation practices, the GAO 
report described the problems that the lack of beneficial ownership 
information has caused for a range of law enforcement investigations.
  In November 2006, our Subcommittee held a hearing further exploring 
this

[[Page S3705]]

issue. At that hearing, representatives of the U.S. Department of 
Justice, DOJ, the Internal Revenue Service, and the Department of 
Treasury's Financial Crimes Enforcement Network, FinCEN, testified that 
the failure of States to collect adequate information on the beneficial 
owners of the legal entities they form has impeded Federal efforts to 
investigate and prosecute criminal acts such as terrorism, money 
laundering, securities fraud, and tax evasion. At the hearing, DOJ 
testified: ``We had allegations of corrupt foreign officials using 
these [U.S.] shell accounts to launder money, but were unable--due to 
lack of identifying information in the corporate records--to fully 
investigate this area.'' The IRS testified: ``Within our own borders, 
the laws of some states regarding the formation of legal entities have 
significant transparency gaps which may even rival the secrecy afforded 
in the most attractive tax havens.'' FinCEN identified 768 incidents of 
suspicious international wire transfer activity involving U.S. shell 
companies.
  In addition, last year, when listing the ``Dirty Dozen'' tax scams 
for 2007, the IRS highlighted shell companies with unknown owners as 
number four on the list, as follows:

       ``4. Disguised Corporate Ownership: Domestic shell 
     corporations and other entities are being formed and operated 
     in certain states for the purpose of disguising the ownership 
     of the business or financial activity. Once formed, these 
     anonymous entities can be, and are being, used to facilitate 
     underreporting of income, non-filing of tax returns, listed 
     transactions, money laundering, financial crimes and possibly 
     terrorist financing. The IRS is working with state 
     authorities to identify these entities and to bring their 
     owners into compliance.''

  That is not all. Dozens of Internet websites advertising corporate 
formation services highlight the fact that some of our States allow 
corporations to be formed under their laws without asking for the 
identity of the beneficial owners. These websites explicitly point to 
anonymous ownership as a reason to incorporate within the U.S., and 
often list certain States alongside notorious offshore jurisdictions as 
preferred locations for the formation of new corporations, essentially 
providing an open invitation for wrongdoers to form entities within the 
U.S.
  One website, for example, set up by an international incorporation 
firm, advocates setting up companies in Delaware by saying: 
``DELAWARE--An Offshore Tax Haven for Non US Residents.'' It cites as 
one of Delaware's advantages that: ``Owners' names are not disclosed to 
the state.'' Another website, from a U.K. firm called ``formacompany-
offshore.com,'' lists the advantages to incorporating in Nevada. Those 
advantages include: ``No I.R.S. Information Sharing Agreement'' and 
``Stockholders are not on Public Record allowing complete anonymity.''
  Despite this type of advertising, years of law enforcement 
complaints, and mounting evidence of abuse, many of our States are 
reluctant to admit there is a problem with establishing U.S. 
corporations and LLCs with unknown owners. Too many of our States are 
eager to explain how quick and easy it is to set up corporations within 
their borders, without acknowledging that those same quick and easy 
procedures enable wrongdoers to utilize U.S. corporations in a variety 
of crimes and tax dodges both here and abroad.
  Since 2006, the Subcommittee has worked with the States to encourage 
them to recognize the homeland security problem they've created and to 
come up with their own solution. After the Subcommittee's hearing on 
this issue, for example, the National Association of Secretaries of 
State, NASS, convened a 2007 task force to examine State incorporation 
practices. At the request of NASS and several States, I delayed 
introducing legislation while they worked on a proposal to require the 
collection of beneficial ownership information. My Subcommittee staff 
participated in multiple conferences, telephone calls, and meetings; 
suggested key principles; and provided comments to the Task Force.
  In July 2007, the NASS task force issued a proposal. Rather than cure 
the problem, however, the proposal was full of deficiencies, leading 
the Treasury Department to state in a letter that the NASS proposal 
``falls short'' and ``does not fully address the problem of legal 
entities masking the identity of criminals.''
  Among other shortcomings, the NASS proposal does not require States 
to obtain the names of the natural individuals who would be the 
beneficial owners of a U.S. corporation or LLC. Instead, it would allow 
States to obtain a list of a company's ``owners of record'' who can be, 
and often are, offshore corporations or trusts. The NASS proposal also 
doesn't require the States themselves to maintain the beneficial 
ownership information, or to supply it to law enforcement upon receipt 
of a subpoena or summons. The proposal also fails to require the 
beneficial ownership information to be updated over time. These and 
other flaws in the proposal have been identified by the Treasury 
Department, the Department of Justice, myself, and others, but NASS has 
given no indication that the flaws will be corrected.
  It is deeply disappointing that the States, despite the passage of 
more than one year, have been unable to devise an effective proposal. 
Part of the difficulty is that the States have a wide range of 
practices, differ on the extent to which they rely on incorporation 
fees as a major source of revenue, and differ on the extent to which 
they attract non-U.S. persons as incorporators. In addition, the States 
are competing against each other to attract persons who want to set up 
U.S. corporations, and that competition creates pressure for each 
individual State to favor procedures that allow quick and easy 
incorporations. It is a classic case of competition causing a race to 
the bottom, making it difficult for any one State to do the right thing 
and request the names of the beneficial owners.

  That is why we are introducing Federal legislation today. Federal 
legislation is needed to level the playing field among the States, set 
minimum standards for obtaining beneficial ownership information, put 
an end to the practice of States forming millions of legal entities 
each year without knowing who is behind them, and bring the U.S. into 
compliance with its international commitments.
  The bill's provisions would require the States to obtain a list of 
the beneficial owners of each corporation or LLC formed under their 
laws, to maintain this information for 5 years after the corporation is 
terminated, and to provide the information to law enforcement upon 
receipt of a subpoena or summons. If enacted, this bill would ensure, 
for the first time, that law enforcement seeking beneficial ownership 
information from a State about one of its corporations or LLCs would 
not be turned away empty-handed.
  The bill would also require corporations and LLCs to update their 
beneficial ownership information in an annual filing with the State of 
incorporation. If a State did not require an annual filing, the 
information would have to be updated each time the beneficial ownership 
changed.
  In the special case of U.S. corporations formed by non-U.S. persons, 
the bill would go farther. Following the lead of the Patriot Act which 
imposed additional due diligence requirements on certain financial 
accounts opened by non-U.S. persons, our bill would require additional 
due diligence for corporations beneficially owned by non-U.S. persons. 
This added due diligence would have to be performed--not by the 
States--but by the persons seeking to establish the corporations. These 
incorporators would have to file with the State a written certification 
from a corporate formation agent residing within the State attesting to 
the fact that the agent had verified the identity of the non-U.S. 
beneficial owners of the corporation by obtaining their names, 
addresses, and passport photographs. The formation agent would be 
required to retain this information for a specified period of time and 
produce it upon request.
  The bill would not require the States to verify the ownership 
information provided to them by a formation agent, corporation, LLC, or 
other person filing an incorporation application. Instead, the bill 
would establish Federal civil and criminal penalties for anyone who 
knowingly provided a State with false beneficial ownership information 
or intentionally failed to provide the State with the information 
requested.
  The bill would also exempt certain corporations from the disclosure 
obligation. For example, it would exempt

[[Page S3706]]

all publicly-traded corporations and the entities they form, since 
these corporations are already overseen by the Security and Exchange 
Commission SEC. It would also allow the States, with the written 
concurrence of the Homeland Security Secretary and the U.S. Attorney 
General, to identify certain corporations, either individually or as a 
class, that would not have to list their beneficial owners, if 
requiring such ownership information would not serve the public 
interest or assist law enforcement in their investigations. These 
exemptions are expected to be narrowly drafted and rarely granted, but 
are intended to provide the States and Federal law enforcement added 
flexibility to fine-tune the disclosure obligation and focus it where 
it is most needed to stop crime, tax evasion, and other wrongdoing.

  Another area of flexibility in the bill involves privacy issues. The 
bill deliberately does not take a position on the issue of whether the 
States should make the beneficial ownership information they receive 
available to the public. Instead, the bill leaves it entirely up to the 
States to decide whether and under what circumstances to make 
beneficial ownership information available to the public. The bill 
explicitly permits the States to place restrictions on providing 
beneficial ownership information to persons other than government 
officials. The bill focuses instead only on ensuring that law 
enforcement and Congress, when equipped with a subpoena or summons, are 
given ready access to the beneficial ownership information collected by 
the States.
  To ensure that the States have the funds needed to meet the new 
beneficial ownership information requirements, the bill makes it clear 
that States can use their DHS State grant funds for this purpose. Every 
State is guaranteed a minimum amount of DHS grant funds every year and 
may receive funds substantially above that minimum. Every State will be 
able to use all or a portion of these funds to modify their 
incorporation practices to meet the requirements in the Act. The bill 
also authorizes DHS to use appropriated funds to carry out its 
responsibilities under the Act. These provisions will ensure that the 
States have the funds needed for the modest compliance costs involved 
with amending their incorporation forms to request the names of 
beneficial owners.
  It is common for bills establishing Federal standards to seek to 
ensure State action by making some Federal funding dependent upon a 
State's meeting the specified standards. This bill, however, states 
explicitly that nothing in the bill authorizes DHS to withhold funds 
from a State for failing to modify its incorporation practices to meet 
the beneficial ownership information requirements in the Act. Instead, 
the bill simply calls for a GAO report in 2012 to identify which 
States, if any, have failed to strengthen their incorporation practices 
as required by the Act. After getting this status report, a future 
Congress can decide what steps to take, including whether to reduce any 
DHS funding going to the noncompliant States.
  Finally, the bill would require the U.S. Department of the Treasury 
to issue a rule requiring formation agents to establish anti-money 
laundering programs to ensure they are not forming U.S. corporations or 
LLCs for criminals or other wrongdoers. GAO would also be asked to 
conduct a study of existing State formation procedures for partnerships 
and trusts.
  We have worked hard to craft a bill that would address, in a fair and 
reasonable way, the homeland security problem created by States 
allowing the formation of millions of U.S. corporations and LLCs with 
unknown owners. What the bill comes down to is a simple requirement 
that States change their incorporation applications to add a question 
requesting the names and addresses of the prospective beneficial 
owners. That is not too much to ask to protect this country and the 
international community from U.S. corporations engaged in wrongdoing 
and to help law enforcement track down the wrongdoers.
  For those who say that, if the United States tightens its 
incorporation rules, new companies will be formed elsewhere, it is 
appropriate to ask exactly where they will go? Every country in the 
European Union is already required to get beneficial information for 
the corporations formed under their laws. Most offshore jurisdictions 
already request this information as well, including the Bahamas, Cayman 
Islands, Jersey, and the Island of Man. Our States should be asking for 
the same ownership information, but they don't, and there is no 
indication that they will any time in the near future, unless required 
to do so.
  I wish Federal legislation weren't necessary. I wish the States could 
solve this homeland security problem on their own, but ongoing 
competitive pressures make it unlikely that the States will reach 
agreement. We have waited more than a year already with no real 
progress to show for it, despite repeated pleas from law enforcement.
  Federal legislation is necessary to reduce the vulnerability of the 
United States to wrongdoing by U.S. corporations with unknown owners, 
to protect interstate and international commerce from criminals 
misusing U.S. corporations, to strengthen the ability of law 
enforcement to investigate suspect U.S. corporations, to level the 
playing field among the States, and to bring the U.S. into compliance 
with its international anti-money laundering obligations.
  There is also an issue of consistency. For years, I have been 
fighting offshore corporate secrecy laws and practices that enable 
wrongdoers to secretly control offshore corporations involved in money 
laundering, tax evasion, and other misconduct. I have pointed out on 
more than one occasion that corporations were not created to hide 
ownership, but to shield owners from personal liability for corporate 
acts. Unfortunately, today, the corporate form has too often been 
corrupted into serving those wishing to conceal their identities and 
commit crimes or dodge taxes without alerting authorities. It is past 
time to stop this misuse of the corporate form. But if we want to stop 
inappropriate corporate secrecy offshore, we need to stop it here at 
home as well.
  For these reasons, I urge my colleagues to support this legislation 
and put an end to incorporation practices that promote corporate 
secrecy and render the United States and other countries vulnerable to 
abuse by U.S. corporations with unknown owners.
  Mr. President, I ask unanimous consent that the text of the bill and 
a bill summary be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows.

                                S. 2956

       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

[[Page S3707]]

     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,

[[Page S3708]]

     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.
                                  ____


 Summary of Incorporation Transparency and Law Enforcement Assistance 
                            Act, May 1, 2008

       To protect the United States from U.S. corporations being 
     misused to commit terrorism, money laundering, tax evasion, 
     or other misconduct, the Incorporation Transparency and Law 
     Enforcement Assistance Act would:
       Beneficial Ownership Information. Require the States to 
     obtain a list of the beneficial owners of each corporation or 
     limited liability company (LLC) formed under their laws, 
     ensure this information is updated annually, and provide the 
     information to civil or criminal law enforcement upon receipt 
     of a subpoena or summons.
       Non-U.S. Beneficial Owners. Require corporations and LLCs 
     with non-U.S. beneficial owners to provide a certification 
     from an in-State formation agent that the agent has verified 
     the identity of those owners.
       Penalties for False Information. Establish civil and 
     criminal penalties under federal law for persons who 
     knowingly provide false beneficial ownership information or 
     intentionally fail to provide required beneficial ownership 
     information to a State.
       Exemptions. Provide exemptions for certain corporations, 
     including publicly traded corporations and the corporations 
     and LLCs they form, since the Securities and Exchange 
     Commission already oversees them; and corporations which a 
     State has determined, with concurrence from the Homeland 
     Security and Justice Departments, should be exempt because 
     requiring beneficial ownership information from them would 
     not serve the public interest or assist law enforcement.
       Funding. Authorize States to use an existing DHS grant 
     program, and authorize DHS to use already appropriated funds, 
     to meet the requirements of this Act.
       State Compliance Report. Clarify that nothing in the Act 
     authorizes DHS to withhold funds from a State for failing to 
     comply with the beneficial ownership requirements. Require a 
     GAO report by 2012 identifying which States are not in 
     compliance so that a future Congress can determine at that 
     time what steps to take.
       Transition Period. Give the States until October 2011 to 
     require beneficial ownership information for the corporations 
     and LLCs formed under their laws.
       Anti-Money Laundering Rule. Require the Treasury Secretary 
     to issue a rule requiring formation agents to establish anti-
     money laundering programs to ensure they are not forming U.S. 
     corporations or other entities for criminals or other suspect 
     persons.
       GAO Study. Require GAO to complete a study of State 
     beneficial ownership information requirements for in-state 
     partnerships and trusts.
                                 ______