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Senators Look to Add Shell Company Reporting to Defense Bill

June 29, 2020, 8:12 PM

Several members of the Senate Banking Committee have reached a bipartisan agreement on anti-money laundering legislation that would introduce new transparency into the ownership of anonymous shell companies.

Senate Banking Chairman Mike Crapo (R-Idaho), ranking member Sherrod Brown (D-Ohio), and seven other committee members plan to offer the compromise text as an amendment to the $740 billion National Defense Authorization Act (S. 4049) set for Senate floor consideration later this week. The sponsors filed the amendment June 25.

The amendment would require newly created companies and limited liability corporations (LLCs) to send ownership details to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), which would maintain a non-public database that law enforcement could use to better track the flow of illicit funds through opaque legal entities.

Banks other financial institutions already collect some beneficial ownership data when onboarding new clients, and the bill would allow them to confirm those details with the FinCEN database as long as they have customer consent.

In addition to the beneficial ownership database, the Senate amendment includes updates to FinCEN’s anti-money laundering oversight, such as the creation of a new whistleblower fund and a review of suspicious activity reporting thresholds.

The proposed amendment largely tracks with the text of a bipartisan Senate bill (S. 2563), sponsored by Sen. Mark Warner (D-Va.) and a handful of Banking Committee members, as well as legislation (H.R. 2513) that passed the House in October 2019.

The lack of transparency about the true owners of shell companies is considered to be one of the largest gaps in the U.S. anti-money laundering regime and has been criticized by the Financial Action Task Force, a global standards-setting group of which the U.S. is a member. These corporate entities are often seen as a mechanism for criminals to move cash and buy real estate and other assets that can be used to hide illicit funds.

Banks’ Support

Creation of a database and other updates are widely supported by the banking industry, national security watchdogs, and law enforcement, but have received pushback from some small business groups over concerns that new disclosures would be onerous for them.

The latest version is supported by the Small Business Majority.

“The definition in the bill is clear, easy to follow, and workable for small businesses who have no need to hide their owners’ identity,” the group said in a June 29 letter to Senate leadership.

The Crapo-Brown amendment faces hurdles because of technical errors in the text, which may not be able to be fixed if the measure is to be included in the manager’s amendment to the defense authorization bill, according to two financial services industry sources familiar with the matter, speaking on background while Senate negotiations are ongoing.

The bill’s sponsors may try to introduce the beneficial ownership legislation as a stand-alone amendment to the Senate defense bill, the financial industry sources said.

The bill’s backers, which include the financial services industry, corporate transparency, and law enforcement groups, may push for the Senate compromise legislation to be included in the House’s version of the defense authorization, the two sources said.

The American Bankers Association, the Bank Policy Institute, and several other banking industry groups wrote Senate leadership and Senate Armed Services Committee Chairman James Inhofe (R-Okla.) and ranking member Jack Reed (D-R.I.) on June 27 urging the amendment’s inclusion in the defense bill.

“The bill strikes the right balance between imposing minimal requirements on small businesses and providing critical information to law enforcement and financial institutions,” the seven banking and credit union groups said. “In addition, if enacted prior to the COVID outbreak, the bill could have assisted financial institution efforts to serve new customers under the Small Business Administration’s Paycheck Protection Program,” they said.

To contact the reporter on this story: Jacob Rund in Washington at jrund@bloomberglaw.com;Lydia Beyoud in Washington at lbeyoud@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Laura D. Francis at lfrancis@bloomberglaw.com

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