US makes first move towards beneficial ownership register

The US House of Representatives has passed the Corporate Transparency Bill, marking the first stage in a bid to clamp down on shell companies with opaque ownership

The next stage in the legislative process is Senate approval.

Under the Corporate Transparency Bill, also known as the Maloney Bill, corporations and limited liability companies (LLCs) would be required to disclose their true, beneficial owners at the time the company was set up to prevent people from using anonymous shell companies to thwart law enforcement and hide their illicit activities. 

‘The illicit use of anonymous shell companies is one of the most pressing national security problems we currently face,’ said congresswoman Carolyn B Maloney (D-NY).

‘They are being used by money launderers, criminals, and terrorists – but we can stop that. We’re the only advanced country in the world that doesn’t already require disclosure of this information — and frankly, it’s an embarrassment.

‘Beyond the impacts for law enforcement, this bill will also help to crack down on New York’s real estate being used to park illicit money, driving up housing costs and limiting availability. It seems that more than ever before, there are too many dark windows in apartments in NYC at night – but with this bill, it is my hope that this practice will be put to an end. Too many anonymous LLCs, instead of families, own NYC apartments. The Senate needs to act to pass this bill without delay.’

Congressman Cleaver said: ‘It’s critical that we bring our banking regulations into the 21st century and give financial institutions the tools necessary to protect American consumers and companies from modern threats. I believe this bill is a big step forward in that regard.’

Currently no US state requires companies to provide the identities of the company’s true, beneficial owners.

The Bill would require corporations and LLCs to disclose their true, beneficial owners to the Financial Crimes Enforcement Network (FinCEN) at the time the company is formed.

This would cover minimum beneficial ownership disclosure requirements, including the beneficial owners’ name, date of birth, current address, and driver’s license or non-expired passport number. Affected companies would have to submit an annual filing to FinCEN to ensure the data is kept up to date, as well as a list of any changes in beneficial ownership that occurred during the previous year.

There would also be civil and criminal penalties for persons who wilfully submit false or fraudulent beneficial ownership information, or who knowingly fail to provide complete or updated beneficial ownership information.

The beneficial ownership information collected by Treasury or the states will only be available to: (1) law enforcement; and (2) financial institutions, with customer consent, for purposes of complying with their Know Your Customer (KYC) requirements under anti-money laundering law.

It is narrowly tailored so as not to be overly burdensome to either businesses or the states themselves — the bill targets companies that are more likely to be shell companies.

Many companies are already required to disclose their beneficial owners, such as federally regulated banks, credit unions, investment advisers, broker-dealers, state-regulated insurance companies, churches, and charitable organisations. As such, these companies are exempt from the bill’s requirements.

Companies with more than 20 employees and over $5m (£3.9m) in gross receipts or sales will be exempt from the rules.

The UK introduced a beneficial ownership register in 2017 - People with Significant Control regulations - which requires all companies to submit the details of any persons of significant control to Companies House once a year. It is also plans to introduce a ownership register for property owned by overseas investors, although this has faced some delays.

Maloney introduced the Bill in May this year with congressmen Peter King (R-NY) and Tom Malinowski (D-NJ). Congressman Emanuel Cleaver’s Counter Act was added to HR 2513 via a manager’s amendment.

Sara White

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