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‘Long Overdue’ Anonymous Shell Company Reforms Move Forward

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

By Bill Flook

Proponents of cracking down on the use of anonymous shell companies cheered the Senate’s December 11, 2020 passage of a defense bill that contains language requiring new disclosures on beneficial ownership.

The Corporate Transparency Act is one of several financial services reforms included in the National Defense Authorization Act (NDAA), which cleared the chamber on a 84-13 vote, a margin big enough to override President Donald Trump’s threatened veto. The House, days before, passed the measure on a 335-78 vote.

“The U.S. is one of the easiest places in the world to set up anonymous shell companies, because no state in the U.S. currently requires companies to disclose their true, beneficial owners,” said Rep. Carolyn Maloney, a New York Democrat who had championed the changes in the House. “The Corporate Transparency Act will finally crack down on anonymous shell companies, which have become the vehicle of choice for terrorist financing, money laundering, and organized crime. When a terrorist cell wants to move their money, or a criminal syndicate wants to launder money, they usually do it right here in the U.S., with a shell company.”

Maloney made the remarks prior to the Senate vote during a speech at 650 5th Avenue in Manhattan, a building the Department of Justice attempted to seize due to its part-owner’s links to an Iranian bank. The Second Circuit blocked the DOJ’s attempt in August 2019, citing errors in a lower court ruling.

The House had passed Maloney’s bill last year, although the measure never advanced in the Senate.

“This bill is long overdue and I’m proud to say it is finally on the verge of being signed into law,” Maloney said.

The bill would require new corporations and limited liability companies (LLCs) to provide a list of the entity’s beneficial owners to the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) that includes personal information such as full legal name, birth date, and residence, among other requirements. The beneficial ownership information would only be made available to law enforcement, or, with a customer’s consent, financial institutions.

The bill contains a long list of exemptions meant to limit its scope to the entities most likely to be used for illicit purposes. Banks, broker-dealers, public issuers, insurance companies, nonprofits, public accounting firms, and others are exempt, as are entities with more than 20 full-time employees and $5 million in revenue, and operate in the United States, which are deemed more likely to be real, legitimate businesses.

Financial transparency watchdogs have long supported the reforms. In a December 11 statement, Global Financial Integrity (GFI), called the inclusion of the language in the NDAA “an important step in combating illicit financial flows.”

“Creating registries of beneficial owners will be an invaluable tool to fight money laundering and a whole host of related crimes such as human trafficking, narcotics and weapons dealing and kleptocracy among them,” said GFI President and CEO Tom Cardamone. “Until now hiding the proceeds of all manner of illegal activity was a simple process. With this transparency requirement law enforcement is one step closer to apprehending the perpetrators.”

Trump has threatened to veto the NDAA unless Congress agrees to strip liability protections from social media companies. He restated that threat in a December 13 tweet: “THE BIGGEST WINNER OF OUR NEW DEFENSE BILL IS CHINA!. I WILL VETO!”

 

This article originally appeared in the December 15, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.

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