Each year, almost 2,000,000 corporations and limited liability companies are being formed under the laws of the various United States. Yet, only a handful of States require information about the beneficial owners of the corporations and limited liability companies formed under their laws. A person forming a corporation or limited liability company within the US typically provides less information at the time of incorporation than is needed to obtain a bank account or a driver’s license and typically does not name a single beneficial owner. This situation is in stark contrast to practices in the European Union, for example, which requires all countries to have corporate registries that include beneficial ownership information.
The US system, which permits a dark shroud of secrecy, has been criticized time and again by members of the international community. The US has been accused of failing to address its own role in attracting illicit financial transactions and aiding in the evasion of other countries’ tax laws (all the while demanding that other countries assist in enforcing US tax laws through the infamous “FATCA”). Delaware, Nevada and Wyoming have frequently been highlighted as hot spots for secretive “shell” companies, with nominee officers and directors serving as mere fronts for the true owners whose identities are kept well hidden.
The use of such shell companies is particularly pronounced for purchases of luxury US real estate. I have blogged previously about the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) efforts in hunting down beneficial owners of high-end US real estate purchased by shell companies in “all cash” transactions. Real estate purchases made without bank financing through shell companies provide an ideal mechanism for money laundering and other crimes.
Corporate Transparency Act of 2019
Just a few days ago, on June 12, 2019, the House Committee on Financial Services voted “yes”, approving H.R. 2513, the “Corporate Transparency Act of 2019” (the “Act”). The Act has actually been in the making over the past several years and has had several versions, this is the latest iteration.
The main sponsor of the Act, Rep. Carolyn B. Maloney, D-N.Y. believes its passage would go a long way in helping law enforcement combat tax crimes, money laundering and terrorist financing activity.
The Act is in the initial stages of the legislative process. According to one source it has only a mere 12% chance of passage. If history serves as a reference, this may be a good prediction since earlier iterations of the Act have failed to pass.
Full text of the Act is here.
You can track the progress of H.R. 2513: Corporate Transparency Act of 2019, here.
Disclosure of Beneficial Owners to FinCEN
The Act, if passed, would amend the Bank Secrecy Act by adding a brand new section requiring companies to disclose the identity of their beneficial owners by providing their name, date of birth, unexpired passport or driver’s license number and current address. Annual filing and updating of the information would be required.
The information would be sent to FinCEN. Many of my readers will know that FinCEN is the agency with primary power over the notorious FBAR. If the Act is passed, the agency will have another significant information gathering tool.
A Dead Duck?
Let’s see how far this goes. The various States and the country as a whole, will not want to lose the strong financial support of untold numbers of foreigners who set up and rely on the anonymity of US corporations or LLCs. The US is viewed as a very enticing tax haven and the various States will not easily give up the cash cow of anonymous corporate formations! We have seen the US drag its feet with regard to measures that might weaken its draw on foreign investment – to date it has refused to sign on to the “Common Reporting Standard” (the “global” version of FATCA, derisively referred to as “GATCA”), and we have seen its questionable “reciprocity” under the FATCA Intergovernmental Agreements negotiated with foreign countries.
Frankly, I agree with the prediction of a meager 12% chance of passage!
Posted: June 16, 2019
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