The House passed legislation Oct. 22 that would require corporations and limited liability companies to reveal their so-called beneficial owners to the federal government when they’re formed.
Supporters of the Corporate Transparency Act, which passed on a 249-173 vote, say it would help U.S. law enforcement stem money laundering and other criminal activity made possible by the use of anonymous shell companies. Twenty-five Republicans voted for the bill, although it generated GOP concerns about data privacy and potential burdens on small businesses.
H.R. 2513, sponsored by Rep. Carolyn Maloney (D-N.Y.), would charge the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) with collecting ownership data submitted by legal entities and housing it in an internal database, which law enforcement agencies could access upon request. Banks could also pull customer information from the database with customer consent—an ability they expect will help their efforts to comply with federal regulations.
Anonymous shell companies “are the vehicle of choice for money launderers, criminals and terrorists,” Maloney said Oct. 22 during debate on the House floor.
Requiring the disclosure of beneficial owners will aid law enforcement in its fight against criminal activity made possible by these shell companies, she added. The bill “will make our country safer.”
House Financial Services Committee Ranking Member Patrick McHenry (R-N.C.), who opposed the bill, said he and Maloney worked to find common ground, but those efforts were hamstrung by a lack of meaningful interactions with Treasury and FinCEN.
According to McHenry, regulators didn’t provide any substantive information to make the case for a beneficial ownership repository. “I refuse to legislate based off of anecdote — I’d like to have hard data,” he said in floor remarks.
McHenry also voiced concern about creating a database that law enforcement can access without a warrant or subpoena, and criticized the bill’s potential impact on small companies — citing a statistic from the National Federation of Independent Business that suggests H.R. 2513 would add more than $5.7 billion in new regulatory costs. The NFIB and the American Bar Association are among the bill’s most vocal private sector opponents.
The Office of Management and Budget, in an Oct. 22 statement of administration policy, said Maloney’s bill “represents important progress in strengthening national security, supporting law enforcement, and clarifying regulatory requirements.” However, it suggested “certain steps” be taken to improve the legislation as it moves forward, including adding database access controls and new small business protections.
The legislation instructs Treasury to develop rules implementing the new reporting regime, and to adjust it’s Customer Due Diligence regulation to reflect financial institutions’ access to the FinCEN-held ownership data. Under the existing CDD rule, banks must collect details on the controlling interests of their legal entity customers.
All corporations and LLCs, as defined by the states in which they are formed, would be subject to the bill’s disclosure requirements unless they fall into one of the several categories that are offered an exemption. Entities not captured include certain publicly traded companies, banks and credit unions, registered broker-dealers, insurance companies, and non-profits.
Corporations and LLCs would also be exempt from disclosure if they fulfill all three requirements outlined in the bill: tax returns showing gross receipts or sales above $5 million, an operating presence in the U.S., and more than 20 full-time, U.S.-based employees. According to its sponsors, H.R. 2513, is aimed at entities without substantial business operations and revenue that are the most likely to be shell companies used to obscure illicit assets.
Companies reporting ownership details to FinCEN must include the full name, date of birth, current residential address, and a unique number from a state or federal government-issued ID of each beneficial owner. They would also need to give FinCEN an annual report of their beneficial owners, including any changes to their previously filed list.
These owners are individuals who exercise “substantial” control over a legal entity, own 25 percent or more in equity interests, and receive substantial economic benefits from the entity’s assess.
Negligence wouldn’t be penalized. But willfully and knowingly falsifying or failing to provide complete ownership data would give cause for criminal fines and up to three years imprisonment, or civil penalties of $10,000 or less.
A manager’s amendment approved by the House Rules Committee folded a standalone, anti-money laundering bill into the Corporate Transparency Act — more closely aligning it with the Senate Banking Committee’s approach to beneficial ownership disclosure.
The legislation, called the COUNTER Act (H.R. 2514), authorizes the Treasury Department to conduct several studies related to anti-money laundering regulations and compliance efforts. It would also tie to inflation the threshold for currency transaction reports that banks and financial institutions must submit to the government.
H.R. 2514, sponsored by Rep. Emanuel Cleaver (D-Mo.), unanimously advanced out of the Financial Services Committee in May.
House lawmakers approved four amendments to Maloney’s bill that, among other changes, would require Treasury to give Congress an annual look at beneficial ownership reporting statistics, develop strict rules for accessing the new FinCEN database, and give “refresher” training to law enforcement agencies with access to the ownership information.
House passage of the Corporate Transparency Act places the immediate future of beneficial ownership legislation squarely in the hands of Senate Banking Committee Chairman Mike Crapo (R-Idaho).
Crapo has publicly expressed support for proposals that would make shell company ownership data more accessible to law enforcement. However, he has not yet committed to holding a vote on a bipartisan bill that’s backed by eight members of his committee and designed to create a centralized database for companies’ beneficial ownership information.
“I don’t have any plans to do that yet, but again, everything is in a mix right now,” Crapo told reporters Oct. 17 when asked if he intended to schedule a committee markup on the ILLICIT CASH Act (S. 2563). The legislation, which would also make several updates to the Bank Secrecy Act, is emerging as the Senate’s primary vehicle for addressing shell company transparency issues.
Despite the absence of definitive plans for a committee vote, co-sponsors of the ILLICIT CASH Act are confident about its potential.
“We hope to have a hearing and maybe even a markup sometime this year,” Sen. Tom Cotton (R-Ark.) told reporters Oct. 17. “We’re working continuously to bring more Republicans on board. So I’m confident about its hopes, not only in committee, but on the Senate floor and becoming law.”
When asked if he had secured a commitment from Crapo that the committee would push forward with the bill, Cotton said the chairman has continued to encourage the work of the bill’s authors. “He wants to use it as the foundation for what you might call a committee consensus legislation.”