[Congressional Record Volume 157, Number 120 (Tuesday, August 2, 2011)]
[Senate]
[Pages S5255-S5260]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. LEVIN (for himself and Mr. Grassley):
  S. 1483. 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 
in ways that threaten homeland security, 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. Today, I along with my colleague, Senator Grassley, am re-
introducing the Incorporation Transparency and Law Enforcement 
Assistance Act, a bill designed to combat terrorism, money laundering, 
tax evasion, and other wrongdoing facilitated by U.S. corporations with 
hidden owners. This commonsense bill would end the practice of our 
States forming over about 2 million new corporations each year for 
unidentified persons, and instead require the States to ask for the 
identities of the persons establishing those corporations. With those 
names on record, U.S. law enforcement faced with corporate misconduct 
would then have a trail to chase instead of what today is too often a 
dead end.
  Our bill is supported by key law enforcement organizations, including 
the Federal Law Enforcement Officers Association, the Fraternal Order 
of Police, the National Association of Assistant United States 
Attorneys, the National Narcotic Officers' Associations Coalition, the 
United States Marshals Service Association, the Society of Former 
Special Agents of the Federal Bureau of Investigation, and the 
Association of Former ATF Agents. It is also endorsed by a number of 
small business and public interest groups, including the Main Street 
Alliance, Sustainable Business Network of Washington, Global Financial 
Integrity, Global Witness, Public Interest Research Group, Project on 
Government Oversight, Jubilee USA, Citizens for Tax Justice, Tax 
Justice Network USA, and the FACT Coalition.
  This is the third time this bill has been introduced. In the 110th 
Congress, when the bill was introduced for the first time and he was a 
member of the U.S. Senate, President Obama served as an original 
cosponsor. It's an issue that has become more urgent with time.
  Right now, it takes more information to get a drivers license or open 
a U.S. bank account than to form a U.S. corporation. Under current law, 
U.S. corporations can be established anonymously, by hidden owners who 
don't reveal their identity. Our bill would change that by requiring 
any State that accepts anti-terrorism funding from DHS to add a new 
question to their existing incorporation forms asking applicants who 
want to set up a new U.S. corporation or limited liability company to 
answer a simple but important question: who are the actual owners?
  That is it. One new question on an existing form. It is not a 
complicated question, yet the answer could play a key role in helping 
law enforcement do their job. Our bill would not require States to 
verify the information, but penalties would apply to persons who submit 
false information. States, or licensed formation agents if a State has 
delegated the task to them, would supply the ownership information to 
law enforcement upon receipt of a subpoena or summons.
  We have all seen the news reports about U.S. corporations involved in 
wrongdoing, from facilitating terrorism to money laundering, financial 
fraud, tax evasion, corruption, and more. Let me give you a few 
examples.
  We now know that some terrorists use U.S. shell corporations to carry 
out their activities. Viktor Bout, an arms dealer who has been indicted 
and incarcerated in the United States for conspiracy to kill U.S. 
nationals, used shell corporations around the world in his work, 
including a dozen formed in Texas, Delaware, and Florida. Mr. Bout was 
recently extradited from Thailand to answer for his conduct at which 
time Attorney General Eric Holder stated: ``Long considered one of the 
world's most prolific arms traffickers, Mr. Bout will now appear in 
federal court in Manhattan to answer to charges of conspiring to sell 
millions of dollars worth of weapons to a terrorist organization for 
use in trying to kill Americans.'' It is unacceptable that Mr. Bout was 
able to set up shell corporations in three of our States and use them 
in illicit activities without ever being asked who owned those 
corporations.
  In another case, a New York company called the Assa Corporation owned 
a Manhattan skyscraper and, in 2007, wire transferred about $4.5 
million in rental payments to a bank in Iran. U.S. law enforcement 
tracking the funds had no idea who was behind that shell corporation, 
until another government disclosed that it was owned by the Alavi 
Foundation which was known to have ties to the Iranian military. In 
other words, a New York corporation was being used to ship millions of 
U.S. dollars to Iran, a notorious supporter of terrorism.
  U.S. corporations with hidden owners have also been involved in 
financial crimes. In 2011, a former Russian military officer, Victor 
Kaganov, pled guilty to operating an illegal money transmitter business 
from his home in

[[Page S5256]]

Oregon, and using Oregon shell corporations to wire more than $150 
million around the world on behalf of Russian clients. U.S. Attorney 
Dwight Holton of the District of Oregon used stark language when 
describing the case: ``When shell corporations are illegally 
manipulated in the shadows to hide the flow of tens of millions of 
dollars overseas, it threatens the integrity of our financial system.''
  Another recent case involves Florida attorney Scott Rothstein who, in 
2010, pled guilty to fraud and money laundering in connection with a 
$1.2 billion Ponzi investment scheme, in which he used 85 U.S. limited 
liability companies to conceal his participation or ownership stake in 
various real estate and business ventures.
  Tax evasion is another type of misconduct which all too often 
involves the use of U.S. corporations with hidden owners. In 2006, for 
example, the Subcommittee showed how Kurt Greaves, a Michigan 
businessman, worked with Terry Neal, an offshore promoter, to form 
shell corporations in Nevada, Canada, and offshore secrecy 
jurisdictions, to hide more than $400,000 in untaxed business income. 
In 2004, both Mr. Greaves and Mr. Neal pled guilty to Federal tax 
evasion. Also in 2006, the Subcommittee showed how two brothers from 
Texas, Sam and Charles Wyly, created a network of 58 trusts and shell 
corporations to dodge the payment of U.S. taxes, including using a set 
of Nevada corporations to move offshore over $190 million in stock 
options without paying any taxes on that compensation.
  Still another area of abuse involves the misuse of U.S. corporations 
in handling corruption proceeds. One example involves Teodoro Obiang, 
who is the son of the President of Equatorial Guinea, holds office in 
that country, and is currently under investigation by the U.S. Justice 
Department, along with his father, for corruption and other misconduct. 
Between 2004 and 2008, Mr. Obiang used U.S. lawyers to form multiple 
California shell corporations with names like Beautiful Vision, 
Unlimited Horizon, and Sweet Pink; open bank accounts in the names of 
those corporations; and move millions of dollars in suspect funds 
through those and other U.S. banks.
  One last example involves 800 U.S. corporations whose hidden owners 
have stumped U.S. law enforcement which, as a result, has given up 
investigating their suspect conduct. In October 2004, the Homeland 
Security Department's division of Immigration and Customs Enforcement 
or ICE identified a single Utah corporation that had engaged in $150 
million in suspicious transactions. ICE found that the corporation had 
been formed in Utah and was owned by two Panama entities which, in 
turn, were owned by a group of Panama holding corporations, all located 
in the same Panama City office. By 2005, ICE had located 800 additional 
U.S. corporations in nearly all 50 states associated with the same 
shadowy group in Panama, but was unable to obtain the name of a single 
natural person who owned one of the corporations. ICE learned that 
those corporations were associated with multiple investigations into 
tax fraud and other wrongdoing, but no one had been able to find the 
corporate owners. The trail went cold, and ICE closed the case. Yet it 
may be that many of those U.S. corporations are still operative.
  These examples of U.S. corporations with hidden owners involved in or 
facilitating terrorism, financial crime, tax evasion, corruption, or 
other misconduct provide ample evidence of the need for legislation to 
address the problem.
  The Federal Law Enforcement Officers Association or FLEOA, which 
represents more than 26,000 federal law enforcement officers and is a 
strong supporter of the bill, has stated that ``the unfortunate lax 
attitude demonstrated by certain states has enabled large criminal 
enterprises to exploit those State's flawed filing systems.'' FLEOA has 
stated further: ``[W]hile all Americans are inspired by the spirit of 
free enterprise, our membership does not want to see the United States 
adopt the financial hideaway image of Switzerland. We regard corporate 
ownership in the same manner as we do vehicle ownership. Requiring the 
driver of a vehicle to have a registration and insurance card is not a 
violation of their privacy. This information does not need to be 
published in a Yellow Pages, but it should be available to law 
enforcement officers who make legally authorized requests pursuant to 
official investigations.''
  The National Association of Assistant United States Attorneys which 
represents more than 1,500 federal prosecutors, urges Congress to take 
legislative action to remedy inadequate state incorporation practices. 
NAAUSA has written: ``[M]indful of the ease with which criminals 
establish `front organizations' to assist in money laundering, 
terrorist financing, tax evasion and other misconduct, it is shocking 
and unacceptable that many State laws permit the creation of 
corporations without asking for the identity of the corporation's 
beneficial owners. Your legislation will guard against that from 
happening, and no longer permit criminals to exploit the lack of 
transparency in the registration of corporations.''
  Just last week, the Administration released a new Strategy to Combat 
Transnational Organized Crime that focused, in part, on the problem of 
corporations with hidden owners. It stated that transnational organized 
criminal networks ``rely on industry experts, both witting and 
unwitting, to facilitate corrupt transactions and to create the 
necessary infrastructure to pursue their illicit schemes, such as 
creating shell corporations, opening offshore bank accounts in the 
shell corporation's name, and creating front businesses for their 
illegal activity and money laundering.'' The Strategy established as 
one of its action plans to ``[w]ork with Congress to enact legislation 
to require disclosure of beneficial ownership information of legal 
entities at the time of company formation in order to enhance 
transparency for law enforcement and other purposes.''
  We need legislation not only to stop the abuses being committed by 
U.S. corporations with hidden owners, but also to meet our 
international commitments. 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 United 
States 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 United States two years, until 2008, to make progress 
toward coming into compliance with the FATF standard on beneficial 
ownership information. That deadline passed three years ago, and we 
have yet to make any real progress. Enacting the bill we are 
introducing today would bring the United States 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 United States meets 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 Senate Permanent Subcommittee on Investigations, which I chair. 
Over ten years ago, in 2000, the Government Accountability Office, 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.'' That 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 hidden owners. 
The alarm it sounded years ago is still ringing.
  In April 2006, in response to a second Subcommittee request, GAO 
released a report entitled, ``Corporation Formations: Minimal Ownership 
Information Is Collected and Available,'' which reviewed the corporate 
formation laws in all 50 States. GAO disclosed that the

[[Page S5257]]

vast majority of the States do not collect any information at all on 
the beneficial owners of the corporations and limited liability 
companies, or LLCs, formed under their laws. The report also found that 
several States have established automated procedures that allow a 
person to form a new corporation or LLC in the State within 24 hours of 
filing an online application without any prior review of that 
application by State personnel. In exchange for a substantial fee, at 
least two States will 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 on the problem. At 
that hearing, representatives of the U.S. Department of Justice, the 
Internal Revenue Service, and the Department of Treasury's Financial 
Crimes Enforcement Network or FinCEN testified that the failure of 
States to collect adequate information on the beneficial owners of the 
legal entities they form had impeded federal efforts to investigate and 
prosecute criminal acts such as terrorism, money laundering, securities 
fraud, and tax evasion. At the hearing, the Justice Department 
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.'' As part of its testimony, FinCEN 
described identifying 768 incidents of suspicious international wire 
transfer activity involving U.S. shell corporations.
  The next year, in 2007, in a ``Dirty Dozen'' list of tax scams active 
that year, the IRS highlighted shell corporations with hidden owners as 
number four on the list. It wrote:

       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.

  It was also in 2007, that we first introduced our bipartisan 
legislation, which was S. 2956 back then, to stop the formation of U.S. 
corporations with hidden owners. It was a Levin-Coleman-Obama bill. 
When asked about the bill in 2008, then DHS Secretary Michael Chertoff 
wrote: ``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.''
  In 2009, the Senate Homeland Security and Governmental Affairs 
Committee held two hearings which examined not only the problem, but 
also possible solutions, including our by then revised bill, S. 569. At 
the first hearing entitled, ``Examining State Business Incorporation 
Practices: A Discussion of the Incorporation Transparency and Law 
Enforcement Assistance Act,'' held in June 2009, DHS testified that 
``shell corporations established in the United States have been 
utilized to commit crimes against individuals around the world.'' The 
Manhattan District Attorney's office testified: ``For those of us in 
law enforcement, these issues with shell corporations are not some 
abstract idea. This is what we do and deal with every day. We see these 
shell corporations being used by criminal organizations, and the record 
is replete with examples of their use for money laundering, for their 
use in tax evasion, and for their use in securities fraud.''
  At the second hearing, ``Business Formation and Financial Crime: 
Finding a Legislative Solution,'' held in November 2009, the Justice 
Department again testified about criminals using U.S. shell 
corporations. It also noted that ``each of these examples involves the 
relatively rare instance in which law enforcement was able to identify 
the perpetrator misusing U.S. shell corporations. Far too often, we are 
unable to do so.'' The Treasury Department testified that ``the ability 
of illicit actors to form corporations in the United States without 
disclosing their true identity presents a serious vulnerability and 
there is ample evidence that criminal organizations and others who 
threaten our national security exploit this vulnerability.''
  The 2009 hearings also presented evidence of dozens of Internet 
websites advertising corporate formation services that highlighted the 
ability of corporations to be formed in the United States without 
asking for the identity of the beneficial owners. These websites 
explicitly pointed to anonymous ownership as a reason to incorporate 
within the United States, and often listed certain States alongside 
notorious offshore jurisdictions as preferred locations in which to 
form new corporations, essentially providing an open invitation for 
wrongdoers to form entities within the United States.
  One website, for example, set up by an international incorporation 
firm, advocated setting up corporations in Delaware by saying: 
``DELAWARE--An Offshore Tax Haven for Non US Residents.'' It cited as 
one of Delaware's advantages that: ``Owners' names are not disclosed to 
the state.'' Another website, from a U.K. firm called 
``formacorporation-offshore.com,'' listed the advantages to 
incorporating in Nevada. Those advantages included: ``Stockholders are 
not on Public Record allowing complete anonymity.''
  During the 2009 hearings, I presented evidence of how one Wyoming 
outfit was selling so-called shelf corporations--corporations formed 
and then left ``on the shelf'' for later sale to purchasers who could 
then pretend the corporations had been in operation for years. More 
recently, a June 2011 Reuters news article wrote a detailed expose of 
how that same outfit, called Wyoming Corporate Services, has formed 
thousands of U.S. corporations all across the country, all with hidden 
owners. The article quoted the website as follows: ``A corporation is a 
legal person created by state statute that can be used as a fall guy, a 
servant, a good friend or a decoy. A person you control . . . yet 
cannot be held accountable for its actions. Imagine the 
possibilities!''
  The article described a small house in Cheyenne, Wyoming, which 
Wyoming Corporate Services used to provide a U.S. address for more than 
2,000 corporations that it had helped to form. The article described 
``the walls of the main room'' as ``covered floor to ceiling with 
numbered mailboxes labeled as corporate suites.'' The article reported 
that among the corporations using the address was a shell corporation 
controlled by a former Ukranian prime minister, Pavlo Lazarenko, who 
had been convicted of money laundering and extortion; a corporation 
indicted for helping online-poker operators evade a U.S. ban on 
Internet gambling; and two corporations barred from U.S. federal 
contracting for selling counterfeit truck parts to the Pentagon. The 
article observed that Wyoming Corporate Services continued to sell 
shelf corporations that existed solely on paper but could show a 
history of regulatory and tax filings, despite having had no real U.S. 
operations. That's what is going on right now, here in our own 
backyard, with respect to U.S. corporations.

  Despite the evidence of U.S. corporations being misused by organized 
crime, terrorists, tax evaders, and other wrongdoers, and despite years 
of law enforcement complaints, many of our States are reluctant to 
admit there is a problem in establishing U.S. corporations and LLCs 
with hidden 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.
  Beginning in 2006, the Subcommittee worked with the States to 
encourage them to recognize the homeland security problem they'd 
created and to come up with their own solution. After the 
Subcommittee's 2006 hearing on this issue, for example, the National 
Association of Secretaries of State or

[[Page S5258]]

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 had many 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 would 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 corporation's ``owners of record'' who can 
be, and often are, offshore corporations or trusts. The NASS proposal 
also did not require the States themselves to maintain the beneficial 
ownership information, or to supply it to law enforcement upon receipt 
of a subpoena or summons. Instead, law enforcement would have to get 
the information from the suspect corporation or one of its agents, 
thereby tipping off the corporation to the investigation. The proposal 
also failed to require the beneficial ownership information to be 
updated over time. These and other flaws in the proposal were 
identified by the Treasury Department, the Department of Justice, and 
others, but NASS decided to continue on the same course.
  NASS enlisted the help of the National Conference of Commissioners on 
Uniform State Laws or NCCUSL, which produced a proposed model law for 
States that wanted to adopt the NASS approach. NCCUSL presented its 
proposal at the Homeland Security and Governmental Affairs Committee's 
June 2009 hearing, where it was subjected to significant criticism. The 
Manhattan District Attorney's office, for example, testified: ``I say 
without hesitation or reservation--that from a law enforcement 
perspective, the bill proposed by NCCUSL would be worse than no bill at 
all. And there are two very basic reasons for this. It eliminates the 
ability of law enforcement to get corporate information without 
alerting the target of the investigation that the investigation is 
ongoing. That is the primary reason. It also sets up a system that is 
time-consuming and complicated.''
  The Department of Justice testified: ``Senator, I would submit to you 
that in a criminal organization everyone knows who is in control and 
this will not be an issue of determining who is in control. What we are 
concerned about here from the law enforcement perspective are the 
criminals and the criminal organizations and so what we are asking is 
that when criminals use shell companies, they provide the name of the 
beneficial owner. That is the person who is in control, the criminal in 
control, as opposed to the NCCUSL proposal where they are suggesting 
that instead two nominees are provided--two nominees between law 
enforcement and the criminal in control.''
  Despite these criticisms, NCCUSL finalized its model law in July 
2009, issuing it under the title, ``Uniform Law Enforcement Access to 
Entity Information Act.'' At the November 2009 hearing, law enforcement 
again criticized the NCCUSL model law. At the hearing, Senator Levin 
asked: ``Now the NCCUSL, in their proposal just requires a records 
contact and that records contact could simply be an owner of record, 
which could be a shell corporation, putting us right back into a circle 
which leads absolutely nowhere in terms of finding the beneficial 
owners. Would you agree that the approach of NCCUSL in this regard is 
not acceptable, Ms. Shasky?'' The Justice Department representative, 
Jennifer Shasky, responded: ``Yes, Senator. To allow companies to 
provide anything less than the beneficial owner information merely 
provides criminals with an opportunity to evade responsibility and put 
nominees between themselves and the true perpetrator.'' With regard to 
NCCUSL's proposal, the Treasury representative, David Cohen, testified: 
``[T]here is not an obligation for that live person to not be a 
nominee. And what I think is important in the legislation is that we 
get at the true beneficial owner and not someone who may be a 
nominee.''
  In addition to its flaws, the NCCUSL model law has proven unpopular 
with the States for whom it was written. Despite the effort and fanfare 
attached to this uniform law, after two years of sitting on the books, 
not a single State has adopted it or given any indication of doing so.
  It is deeply disappointing that the States, despite the passage of 
five years since FATF first called upon the United States to meet its 
commitment to collect beneficial ownership information, 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, with no questions 
asked. It's 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 identity of the persons behind the incorporation efforts.
  That is why Federal legislation in this area is critical. 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 United 
States into compliance with its international commitments.
  The bill's provisions would require the States to obtain from 
incorporation applicants a list of the beneficial owners of each 
corporation or LLC formed under their laws, to maintain this 
information for a period of years after a corporation is terminated, 
and to provide the information to law enforcement upon receipt of a 
subpoena or summons. The bill would also require corporations and LLCs 
to update their beneficial ownership information on a regular basis. 
The ownership information would be kept by the State or, if a State 
maintains a formation agent licensing system and delegates this task, 
by a State's licensed formation agents.
  The particular information that would have to be provided for each 
beneficial owner is the owner's name, address, and unique identifying 
number from a State drivers license or U.S. passport. The bill would 
not require States or their licensed formation agents to verify this 
information, but penalties would apply to persons who submitted false 
information.
  In the case of U.S. corporations formed by individuals who do not 
possess a drivers license or passport from the United States, the bill 
would require the incorporation application to include a written 
certification from a formation agent residing within the State 
attesting to the fact that the agent had obtained and verified the 
identity of the non-U.S. beneficial owners of the corporation, by 
obtaining their names, addresses, and identifying information from a 
non-expired non-U.S. passport. The formation agent would be required to 
retain this information in the State for a specified period of time and 
produce it upon receipt of a subpoena or summons from law enforcement.
  To ensure that its provisions are tightly targeted, the bill would 
exempt a wide range of corporations from the disclosure obligation. It 
would exempt, for example, virtually all highly regulated corporations, 
because we already know who owns them. That includes all publicly-
traded corporations, banks, broker-dealers, commodity brokers, 
registered investment funds, registered accounting firms, insurers, 
utilities, and charities that file returns with the IRS. The bill would 
also exempt corporations with a substantial U.S. presence, including at 
least 20 employees physically located in the United States, since those 
individuals could provide law enforcement with the leads needed to 
trace a corporation's true owners. In addition, the bill would exempt 
corporations whose beneficial

[[Page S5259]]

ownership information would not benefit the public interest or assist 
law enforcement. These exemptions dramatically reduce the number of 
corporations who would be required to provide beneficial ownership 
information to ensure that the bill's disclosure obligation is focused 
on only those whose owners' identities are currently hidden.
  The bill does not take a position on the issue of whether the States 
should make the beneficial ownership information available to the 
public. Instead, the bill leaves it entirely up to the States to decide 
whether, under what circumstances, and to what extent 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 on ensuring that law enforcement 
with a subpoena or summons is given ready access to the beneficial 
ownership information.
  Relative to the costs of compliance, the bill provides States with 
access to two separate funding sources, neither of which involves 
appropriated funds. For the first three years after the bill's 
enactment, the bill directs both the Treasury and Justice Departments 
to make funds available from their individual forfeiture programs to 
States seeking to comply with the requirements of the Act. These 
forfeiture funds are not appropriated taxpayer dollars; instead they 
are the proceeds of forfeiture actions taken against persons involved 
in money laundering, drug trafficking, or other wrongdoing. The two 
forfeiture funds typically contain between $300 and $500 million at a 
time. The bill would direct a total of $30 million over three years to 
be provided to the States from the two funds to carry out the Act. 
These provisions would ensure that States have adequate funds for the 
modest compliance costs involved with adding a new question to their 
incorporation forms requesting the names of the covered corporations' 
beneficial owners.
  It is common for bills establishing minimum Federal standards to seek 
to ensure State action by making some Federal funding dependent upon a 
State's meeting the specified standards. Our bill, however, states 
explicitly that nothing in its provisions 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 calls for a GAO report in 2015 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 
funding going to noncompliant States.
  The bill also contains a provision that would require corporations 
bidding on Federal contracts to provide the same beneficial ownership 
information to the Federal Government as provided to the relevant 
State. The Subcommittee has become aware of instances in which the 
Federal Government has found itself doing business with U.S. 
corporations whose owners are hidden. It's important that when the 
Federal Government contracts to do business with someone, it knows who 
it is dealing with.
  Finally, the bill would require the Treasury Department to issue a 
rule requiring U.S. formation agents to establish anti-money laundering 
programs to ensure they are not forming U.S. corporations or LLCs for 
wrongdoers. The bill requires the programs to be risk based so that 
formation agents can target their preventative efforts toward persons 
who pose a high risk of being involved with money laundering. GAO would 
also be asked to conduct a study of existing State formation procedures 
for partnerships, trusts, and charitable organizations.
  We have worked with the Departments of Homeland Security, Treasury, 
and Justice to craft a bill that would address, in a fair and 
reasonable way, the homeland security problems created by States 
allowing the formation of millions of U.S. corporations and LLCs with 
hidden owners. What the bill comes down to is a simple requirement that 
States change their incorporation applications to add a single question 
requesting identifying information for the true owners of the 
corporations they form. That is not too much to ask to protect this 
country and the international community from wrongdoers seeking to 
misuse U.S. corporations.

  For those who say that, if the United States tightens its 
incorporation rules, new corporations will be formed elsewhere, it is 
appropriate to ask exactly where they will go. Every country in the 
European Union is already required to have their formation agents 
collect beneficial information for the corporations formed by those 
agents. Most offshore jurisdictions also already require request this 
information to be collected, including the Bahamas, Cayman Islands, and 
the Channel Islands. Countries around the world already request 
beneficial ownership information, in part because of their commitment 
to FATF's international anti-money laundering standards. Our 50 States 
should be asking for the same ownership information, but 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 do the 
right thing. It is been more than five years since our 2006 hearing on 
this issue and more than two years since the States came up with a 
model law on the subject, with no progress to speak of, 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 hidden 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 United States 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 protect owners from personal liability for corporate 
acts. Unfortunately, today, the corporate form has too often been 
corrupted into serving those who wish to conceal their identities. 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 join us in supporting this 
legislation and putting 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 hidden owners.
  Mr. President, I ask unanimous consent that a bill summary be printed 
in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

 Summary of Incorporation Transparency and Law Enforcement Assistance 
                                  Act

                             August 2, 2011

       To protect the United States from U.S. corporations being 
     misused to support terrorism, money laundering, tax evasion, 
     or other misconduct, the Levin-Grassley Incorporation 
     Transparency and Law Enforcement Assistance Act would:
       Beneficial Ownership Information. Require the States 
     directly or through licensed formation agents to obtain the 
     names of beneficial owners of corporations or limited 
     liability companies (LLCs) formed under a State's laws, 
     ensure this information is updated, and provide the 
     information to law enforcement upon receipt of a subpoena or 
     summons.
       Identifying Information. Require corporations to provide 
     beneficial owners' names, addresses, and a U.S. drivers 
     license or passport number; or if the owners do not have 
     either a U.S. drivers license nor passport, information from 
     their non-U.S. passports.
       Federal Contractors. Require corporations bidding on 
     federal contracts to provide the same beneficial ownership 
     information to the federal government.
       Shelf Corporations. Require formation agents selling 
     ``shelf corporations''--companies formed for later sale to a 
     third party--to identify the beneficial owners of those 
     corporations.
       Penalties for False Information. Establish penalties for 
     persons who knowingly provide false information, or willfully 
     fail to provide required information, on beneficial 
     ownership.

[[Page S5260]]

       Exemptions. Exempt from the disclosure obligation regulated 
     corporations, including publicly traded companies, banks, 
     broker-dealers, insurers, registered investment funds, and 
     charities; corporations with a substantial U.S. presence; and 
     corporations whose beneficial ownership information would not 
     benefit the public interest or assist law enforcement.
       Funding. Provide $30 million over three years to States 
     from existing Treasury and Justice Department forfeiture 
     funds to pay for the costs of complying with the Act.
       State Compliance Report. Specify that nothing in the Act 
     authorizes funds to be withheld from any State for failure to 
     comply with the Act, but also require a GAO report by 2015 
     identifying which States are not in compliance so a future 
     Congress can determine what steps to take.
       Transition Period. Give the State' s three years, until 
     October 2014, to require beneficial ownership information for 
     corporations and LLCs formed under their laws.
       Anti-Money Laundering Safeguards. Require paid formation 
     agents to establish anti-money laundering programs to guard 
     against supplying U.S. corporations or LLCs that facilitate 
     misconduct. Attorneys using paid formation agents would be 
     exempt from this requirement.
       GAO Study. Require GAO to complete a study of State 
     beneficial ownership information requirements for 
     partnerships, charities, and trusts.
                                 ______