Sec. 2. Findings

814 words·~4 min read·/bill/116/s/1889/is/section-2

A research copy — for the controlling text, always check the official state or federal source. Not legal advice.

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, sex trafficking, money laundering, tax evasion, health care fraud, 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. In addition, Iranian interests used a shell company formed in New York to purchase a 36-story building on Fifth Avenue in Manhattan and forwarded millions of dollars in rent each year to Iran until authorities in the United States learned of the transfers and seized the building.

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 December 2016, 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.

The report called the United States framework in this area seriously deficient and urged the United States to correct this deficiency. 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. 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, countries around the world are working to collect beneficial ownership information. The United Kingdom now collects beneficial ownership information for all companies formed under its laws and makes the information available to the public. All 28 countries in the European Union are required to create, maintain, and update registries of the beneficial ownership information of the corporations formed under the laws of those countries.

The information must be freely available to law enforcement agencies, financial institutions, and third parties that can demonstrate a legitimate interest in the information. Afghanistan, Ghana, Kenya, Nigeria, South Africa, the Ukraine, and many other countries are in the process of establishing mechanisms to collect beneficial ownership information for the companies created under their laws. 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.