[Congressional Record Volume 159, Number 113 (Thursday, August 1, 2013)]
[Senate]
[Pages S6229-S6235]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. LEVIN (for himself, Mr. Grassley, Mrs. Feinstein, and Mr. 
        Harkin):
  S. 1465. A bill to ensure that persons who form corporations in the 
United States disclose the beneficial owners of those corporations, in 
order to prevent the formation of corporations with hidden owners, stop 
the misuse of United States corporations by wrongdoers, and assist law 
enforcement in detecting, preventing, and punishing terrorism, money 
laundering, tax evasion, and other criminal and civil misconduct 
involving United States corporations, and for other purposes; to the 
Committee on the Judiciary.
  Mr. LEVIN. Mr. President, today, along with my colleagues, Senator 
Grassley, Senator Feinstein, and Senator Harkin, I am reintroducing 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 about 2 
million new corporations each year for unidentified persons, and 
instead require a list of the real owners to be submitted so that, if 
misconduct later occurred, law enforcement could access the owners list 
and have a trail to chase, instead of confronting what has all too 
often been 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, and the Society of Former Special Agents of the Federal 
Bureau of Investigation, as well as by Manhattan District Attorney 
Cyrus Vance. It is also endorsed by a number of small business, public 
interest, and good government groups, including the Main Street 
Alliance, American Sustainable Business Council, National Money 
Transmitters Association, AFL-CIO, SEIU, Global Financial Integrity, 
Global Witness, U.S. Public Interest Research Group, Transparency 
International, Public Citizen, Project on Government Oversight, Jubilee 
USA Network, Tax Justice Network USA, Human Rights Watch, Friends of 
the Earth, Open Society Policy Center, Revenue Watch Institute, the 
FACT Coalition, and more. .
  This is the fourth Congress in which this bill has been introduced to 
provide a solution to a problem that has gained only more urgency with 
time. In 2008,

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when the bill was first introduced, President Obama was a member of the 
U.S. Senate and an original cosponsor. In 2013, President Obama stood 
with other international leaders at a G8 summit in June to condemn 
corporations with hidden owners who commit crimes, tax evasion, and 
other wrongdoing. The G8 leaders made a joint commitment to combat that 
problem. President Obama immediately responded with a U.S. action plan 
that, among other measures, calls for enacting legislation to end the 
shameful practice in this country of forming U.S. corporations with 
unnamed owners and unleashing them on, not only our own communities, 
but the international community as well.
  A World Bank study found that the United States forms more 
corporations per year than all the rest of the countries in the world 
put together. Under current law, those U.S. corporations can be 
established anonymously, by hidden owners who don't reveal their 
identity. According to another recent study by Griffith University 
examining multiple jurisdictions, it is easier to obtain an anonymous 
shell company in the United States than almost anywhere else in the 
world. That study also found that ``only a tiny portion of U.S. 
providers of any kind met the international standard of requiring 
notarized identity documents.''
  Right now, in the United States, it takes more information to get a 
driver's license or to open a U.S. bank account than to form a U.S. 
corporation. Our bill would change that by requiring any State that 
accepts crime-fighting grants from the Department of Justice to add one 
new question to their existing incorporation forms asking applicants to 
identify the company's true 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 jobs. 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.
  The Problem. 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 that indicate the scope of the problem.
  We now know that some terrorists use U.S. corporations to carry out 
their activities. Viktor Bout, an arms dealer who was found guilty in 
November 2011 of conspiring to kill U.S. nationals and selling weapons 
to a terrorist organization, used corporations around the world in his 
work, including a dozen formed in Texas, Delaware, and Florida. At the 
time of Mr. Bout's extradition to face justice here in America, 
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 corporations in three of our States and use them in 
illicit activities without ever being asked for the names of the 
corporate owners.
  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 corporation, until 
another government disclosed that it was owned by the Alavi Foundation 
which had known 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 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 financial fraud 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 
and ownership stake in various business ventures. In still another case 
earlier this year, the Securities and Exchange Commission suspended 
trading in 61 shell corporations suspected of being misused to defraud 
investors.
  Shell corporations are also notorious for their role in health care 
fraud. One example involves an individual named Michel Huarte who 
formed 29 shell companies in several states including Florida, 
Louisiana, and North Carolina, used them to make fraudulent health care 
claims, and bilked Medicare out of more than $50 million. In 2010, he 
was sentenced to 22 years in prison. He is one in a long line of 
fraudsters who have hidden behind U.S. corporations to defraud Medicare 
and Medicaid.
  Tax evasion is another type of misconduct which all too often 
involves the use of U.S. corporations with hidden owners. One 
Subcommittee investigation showed, for example, 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. 
Both Mr. Greaves and Mr. Neal later pled guilty to federal tax evasion. 
The Subcommittee also 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 taxes on that compensation.
  Still another area of abuse involves corrupt foreign officials using 
U.S. corporations to hide and spend their illicit funds. One example 
involves Teodoro Obiang, who is the son of the President of Equatorial 
Guinea, holds office in that country, and has purchased luxury homes, 
cars, and even a personal jet here in the United States. A Subcommittee 
investigation disclosed that, as part of his actions, Mr. Obiang used 
U.S. lawyers to form several California shell corporations with names 
like Beautiful Vision, Unlimited Horizon, and Sweet Pink to open bank 
accounts in the names of those corporations, move millions of dollars 
in suspect funds into the United States, and use those funds to support 
an affluent lifestyle. The Department of Justice has since filed suit 
to seize his U.S. property, alleging that Mr. Obiang acquired it 
through corruption and money laundering.
  One last example involves 800 U.S. corporations whose hidden owners 
have stumped U.S. law enforcement trying to investigate 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 Panamanian entities which, in turn, were owned by 
a group of Panamanian holding corporations, all located at the same 
Panama City office. By 2005, ICE had located 800 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 
any one of the corporations. ICE had learned that the 800 corporations 
were associated with multiple U.S. 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 enaged in wrongdoing.
  These examples of U.S. corporations with hidden owners facilitating 
terrorism, financial crime, health care fraud, tax evasion, corruption, 
and other misconduct provide ample evidence of the need for legislation 
to find out who is behind the mayhem. That's

[[Page S6231]]

why law enforcement officials are among the bill's strongest 
supporters.
  The Federal Law Enforcement Officers Association or FLEOA, which 
represents more than 26,000 Federal law enforcement officers, has 
explained its strong support for the bill as follows:

       Suspected terrorists, drug trafficking organizations and 
     other criminal enterprises continue to exploit the anonymity 
     afforded to them through the current corporate filing process 
     in a few states. Hiding behind a registered agent, these 
     criminals are able to incorporate without disclosing who the 
     beneficial owners are for their company(s). This enables them 
     to establish corporate flow-through entities, otherwise known 
     as shell companies,' to facilitate money laundering and 
     narcoterrorist financing.
       Even through the due process of proper service of a court 
     order, law enforcement officers are unable to determine who 
     the beneficial owners are of these entities. This has to 
     stop. While we fully recognize and respect the privacy 
     concerns of law abiding citizens, we need to install a 
     baseline of checks and balances to deter the criminal 
     exploitation of our corporate filing process.

  The Fraternal Order of Police, which has 330,000 members across the 
country, offers a similar explanation for its support of the bill:

       For years corporations have been used as front 
     organizations by criminals conducting illegal activity such 
     as money laundering, fraud, and tax evasion. . . . This bill 
     is critical to our work because, all too often, 
     investigations are stymied when we encounter a company with 
     hidden ownership. . . . [T]he sharing of beneficial ownership 
     information with law enforcement will greatly assist our 
     investigations. When we are able to expose the link between 
     shell companies and drug trafficking, corruption, organized 
     crime and terrorist finance, the law enforcement community is 
     better able to keep America safe from these illegal 
     activities and keep the proceeds of these crimes out of the 
     U.S. financial system.

  The National Association of Assistant United States Attorneys, which 
represents more than 1,500 federal prosecutors, has urged Congress to 
take legislative action to strengthen inadequate state incorporation 
practices: ``[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. 
The legislation will guard against that and no longer permit criminals 
to exploit the lack of transparency in the registration of 
corporations.''
  Manhattan District Attorney Cyrus Vance Jr. has publicly urged 
Congress to enact this bill. He wrote: ``I have spoken with many 
colleagues in the law enforcement community, and every one of us 
supports the bill as a simple and common sense movement to help prevent 
white collar crime. . . . Because there is no national standard 
requiring disclosure of beneficial ownership, criminals can set up U.S. 
corporations anonymously and use them as fronts for all kinds of 
illicit activity without having to identify who actually controls and 
profits from the activity. In a simple stroke, the proposed bill would 
eliminate this needless barrier to the detection and prosecution of 
financial crimes.''
  Some members of the U.S. financial industry with obligations under 
U.S. anti-money laundering laws to know their customers, including when 
doing business with a shell corporation, support the legislation 
because it will help them know who is behind U.S. corporations seeking 
to open accounts with them. The National Money Transmitters 
Association, NMTA, for example, which represents state-licensed money 
transmitters, has written in support of the bill, explaining: ``The 
NMTA urges you to give us the KYC, know-your-customer, tools we need to 
do our job efficiently and make sure that our nation's standards are 
brought up to a level equal to that of other advanced countries.''
  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 complying with the FATF standard on beneficial ownership 
information. But that deadline passed five years ago, with no real 
progress. Enacting the bill we are introducing today would help 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 help ensure that the 
United States meets its international anti-money laundering 
commitments.
  Combating the misuse of corporations with hidden owners has 
increasingly become a global priority. In a letter to President Obama 
earlier this year, prominent prosecutors and corruption hunters from 
across the globe urged the United States to collect company beneficial 
ownership information to fight wrongdoing. According to the letter: 
``Grand corruption would not be possible without the help of the global 
financing system--in particular, banks that accept corrupt assets and 
secrecy rules that allow money launderers to disguise their activity. . 
. . We believe that part of the solution is for governments to require 
existing company registers to collect information on the ultimate 
owners of companies.''
  As I mentioned earlier, countries around the world have begun to take 
action to tackle the problem. Just last month, during the G8 summit in 
Northern Ireland, leaders announced their commitment to ending the 
practice of establishing anonymous shell companies and declared: 
``Companies should know who really owns them and tax collectors and law 
enforcers should be able to obtain this information easily.'' To 
implement that principle, the G8 leaders pledged to publish national 
Action Plans outlining the concrete steps each country will take to 
ensure that law enforcement and tax authorities have ready access to 
information on who owns and controls the companies formed under their 
laws.
  In announcing the U.S. Action Plan, the White House expressed its 
commitment to ensuring that law enforcement and tax authorities have 
access to ownership information for companies formed within U.S. 
borders. The Plan explicitly calls for enactment of legislation that 
meets certain principles, all of which are met by the bill introduced 
today. Those principles are the following:
  ``Requirements for covered legal entities to disclose beneficial 
ownership to states or regulated corporate formation agents at the time 
of company formation.
  ``Requirements for verification of the identity of the beneficial 
owner.
  ``Options for covering legal entities depending on whether the 
applicant forms the legal entity directly or uses a regulated company 
formation agent.
  ``Requirements for law enforcement authorities, including tax 
authorities, to be able to access beneficial ownership information upon 
appropriate request through a central registry at the state level.
  ``An extension of anti-money laundering obligations to company 
formation agents, including an obligation to identify and verify 
beneficial ownership information.
  ``A mandate that entities provide updated information when changes of 
beneficial ownership occur within 60 days; and
  ``The imposition of civil and criminal penalties for knowingly 
providing false information.''
  The White House and the international community have made the 
collection of beneficial ownership information for corporations a 
global priority this year. It is time for Congress to step up to the 
plate and take the necessary action.
  The bill introduced today is the product of years of work by the 
Senate Permanent Subcommittee on Investigations, which I chair. Over 
twelve years ago, in 2000, the Government Accountability Office, at my 
request, conducted an investigation and released a report entitled, 
``Suspicious Banking

[[Page S6232]]

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 any 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 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 had 
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 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.

  In 2008, we first introduced our bipartisan legislation to stop the 
formation of U.S. corporations with hidden owners. It was a Levin-
Coleman-Obama bill, S. 2956, back then. 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 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 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. Those 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. A June 
2011 Reuters news article wrote a detailed expose of how that same 
outfit, Wyoming Corporate Services, had 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 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 the type of 
deceptive conduct going on right now, here in our own backyard, with 
respect to U.S. corporations with hidden owners.
  Despite the evidence of U.S. corporations being misused by organized

[[Page S6233]]

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 law enforcement and national 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 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 on the issue.
  In July 2007, the NASS task force issued a proposal. Rather than cure 
the problem, however, the proposal had multiple serious 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 with their own 
hidden owners. The NASS proposal also did not require the States 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 continued 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 for failing to provide the names of 
the true owners of the corporations being formed. The Justice 
Department testified: ``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, Treasury 
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 the uniform model, after four 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 
many years, have been unable to devise an effective proposal to stop 
the formation of corporations with hidden owners. One key difficulty is 
that the States are competing against each other to attract persons who 
want to set up U.S. corporations. 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 ask for the identity of the persons 
behind the corporations being formed.
  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 ask incorporation 
applicants for 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 a unique identifying 
number from a State driver's license or a U.S. passport. The bill would 
not require States to verify this information, but penalties would 
apply to persons who submit false information.
  In the case of U.S. corporations formed by individuals who do not 
possess a driver's license or passport from the United States, the bill 
would permit them to submit their names, addresses, and identifying 
information from a non-U.S. passport to a formation agent residing 
within the State. They would have to include a copy of a passport 
photograph. The incorporation application would have to include a 
written certification that the formation agent had obtained the 
information and verified the identity of the non-U.S. corporate owners. 
The formation agent would have to retain the 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, and 
utilities. 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

[[Page S6234]]

owners. In addition, the bill would exempt businesses set up by 
governments, churches, charities, and nonprofit corporations, since 
disclosure of their beneficial ownership information would not advance 
the public interest or assist law enforcement. These exemptions 
dramatically reduce the number of corporations who would actually have 
to file beneficial ownership information on state incorporation forms 
in order to ensure that the bill's disclosure obligations focus only on 
owners whose identities are currently hidden.
  The bill does not take a position on the issue of whether the States 
should make 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 requires both the Justice and Treasury Departments 
to make funds available from their individual forfeiture programs to 
States incurring reasonable expenses to comply with the Act. These 
forfeiture funds do not contain taxpayer dollars; instead they contain 
the proceeds of forfeiture actions taken against persons involved in 
money laundering, drug trafficking, or other wrongdoing. The bill would 
direct a total of $40 million over 3 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.
  The compliance costs would be modest, because the bill does not 
require any State to change its laws, set up new forms, create new 
databases of information, or verify the information provided. To the 
contrary, the only steps that a State would need to take would be to 
add one question to its existing incorporation form asking for the 
corporation's beneficial owners, keep that incorporation application on 
file which all States do already, and make the ownership information 
available to law enforcement upon receipt of a subpoena or summons.
  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 the withholding of 
federal funds from a State for failing to modify its incorporation 
practices to meet the beneficial ownership information requirements of 
the act. Instead, the bill calls for a GAO report within 5 years of 
enactment to identify any States that had 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 in the 
event there are any 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, including owners under 
investigation for suspect conduct. It is 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 wrongdoing. GAO would also 
be asked to conduct a study of existing State formation procedures for 
partnerships, trusts, and charitable organizations to see if additional 
ownership disclosure requirements are warranted.
  We have worked with the Departments of Justice, Treasury, and 
Homeland Security to craft a bill that would address, in a fair and 
reasonable way, the significant law enforcement problems created by 
States allowing the formation of millions of U.S. corporations and LLCs 
with hidden owners. When those corporations commit crimes, they affect 
not only interstate commerce with U.S. victims, but also our 
relationships with other countries whose citizens may become victims of 
U.S. corporate wrongdoing. What the bill comes down to is a simple 
requirement that States strengthen 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 
misusing 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. A recent report found 
that virtually every other country is already tougher than the United 
States in terms of demanding and verifying beneficial ownership 
information. Most offshore tax havens, for example, already require 
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 meeting the same standards, but there is no 
indication that they will, unless required to do so.
  I wish Federal legislation weren't necessary. I wish the States could 
solve this law enforcement problem on their own, but ongoing 
competitive pressures make it unlikely that the States will do the 
right thing. It's been nearly seven years since our 2006 hearing on 
this issue and more than four 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 summary of the bill 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

       To protect the United States from U.S. corporations being 
     misused to support terrorism, money laundering, tax evasion, 
     and other misconduct, the Levin-Grassley-Feinstein-Harkin 
     Incorporation Transparency and Law Enforcement Assistance Act 
     would:

[[Page S6235]]

       Beneficial Ownership Information. Require the States 
     directly or through licensed formation agents to obtain the 
     names of beneficial owners of the corporations or limited 
     liability companies (LLCs) formed under State law, ensure 
     this information is updated, and provide the information to 
     law enforcement upon receipt of a subpoena or summons.
       Shelf Corporations. Require formation agents who sell 
     ``shelf corporations''--corporations formed for later sale to 
     third parties--to identify the beneficial owners who buy 
     them.
       Federal Contractors. Require corporations or LLCs bidding 
     on federal contracts to provide beneficial ownership 
     information to the federal government.
       Identifying Information. Require the provision of 
     beneficial owners' names, addresses, and a U.S. drivers 
     license or passport number, or information from a non-U.S. 
     passport.
       Penalties for False Information. Establish penalties for 
     persons who knowingly provide false information, or willfully 
     fail to provide required information, on beneficial 
     ownership.
       Exemptions. Exempt from the disclosure obligation regulated 
     corporations, including publicly traded companies, banks, 
     broker-dealers, insurers, and accounting firms; 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 $40 million over three years to States 
     from existing Justice and Treasury Department forfeiture 
     funds to pay for the costs of complying with the Act.
       State Compliance Report. Specify that funds may not be 
     withheld from any State for failure to comply with the Act, 
     but also require a GAO report in five years identifying any 
     States not in compliance so a future Congress can determine 
     if additional steps are needed.
       Transition Period. Give the States two years to begin 
     requiring existing corporations and LLCs to provide 
     beneficial ownership information.
       Anti-Money Laundering Safeguards. Require paid formation 
     agents to establish anti-money laundering programs to guard 
     against supplying U.S. corporations or LLCs to wrongdoers. 
     Attorneys using paid formation agents would be exempt from 
     this requirement.
       GAO Study. Require GAO to complete a study of existing 
     beneficial ownership information requirements for 
     partnerships, charities, and trusts.
                                 ______