Sec. 2. Findings
683 words·~3 min read·
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Congress finds the following: Nearly 2,000,000 corporations and limited liability companies are being formed under the laws of the States each year. Very few States obtain meaningful 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 United States typically provides less information to the State of incorporation than is needed to obtain a bank account or driver's license and typically does not name a single beneficial owner.
Terrorists and other criminals have exploited the weaknesses in State formation procedures to conceal their identities when forming corporations or limited liability companies in the United States, and have then used the newly created entities to support terrorist organizations, drug trafficking organizations, and international organized crime groups, as well as commit misconduct affecting interstate and international commerce such as trafficking in illicit drugs, illegal arms trafficking, money laundering, tax evasion, Internet-based fraud, securities fraud, financial fraud, intellectual property crimes, and acts of corruption.
Among those who have abused State incorporation procedures is Victor Bout, a Russian arms dealer who used at least 12 companies incorporated in Texas, Florida, and Delaware to carry out his activities, and has been convicted, in part, for conspiring to sell weapons to a terrorist organization trying to kill citizens of the United States and Federal officers and employees. Law enforcement efforts to investigate corporations and limited liability companies suspected of wrongdoing have been impeded by the lack of available beneficial ownership information, as documented in reports and testimony by officials from the Department of Justice, the Department of Homeland Security, the Financial Crimes Enforcement Network of the Department of the Treasury, the Internal Revenue Service, the Government Accountability Office, and others.
In July 2006, a leading international anti-money laundering and anti-terrorist financing organization, the Financial Action Task Force on Money Laundering (in this section referred to as FATF ), of which the United States is a member, issued a report that criticized the United States for failing to comply with a FATF standard on the need to collect beneficial ownership information and urged the United States to correct this deficiency by July 2008. In response to the FATF report and to strengthen measures to protect homeland security, Federal officials have repeatedly urged the States to improve their formation practices by obtaining beneficial ownership information for the corporations and limited liability companies formed under the laws of such States.
But the States continue to form millions of corporations with hidden owners. Many States have established automated procedures that allow a person to form a new corporation or limited liability company within the State within 24 hours of filing an online application, without any prior review of the application by a State official. In exchange for a substantial fee, 2 States will form a corporation within 1 hour of a request. Dozens of Internet websites highlight the anonymity of beneficial owners allowed under the formation practices of some States, point to those practices as a reason to incorporate in those States, and list those States together with offshore jurisdictions as preferred locations for the formation of new corporations, essentially inviting terrorists and other wrongdoers to form entities within the United States.
In contrast to practices in the United States, all 28 countries in the European Union are already required to have formation agents identify the beneficial owners of the corporations formed by those agents under the laws of those countries. To reduce the vulnerability of the United States to wrongdoing by United States corporations and limited liability companies with hidden owners, protect interstate and international commerce from terrorists and other criminals misusing United States corporations and limited liability companies, strengthen law enforcement investigations of suspect corporations and limited liability companies, set minimum standards for and level the playing field among State formation practices, and bring the United States into compliance with international anti-money laundering and anti-terrorist financing standards, Federal legislation is needed to require the States to obtain beneficial ownership information for the corporations and limited liability companies formed under the laws of such States.