Co-sponsoring the "Incorporation Transparency and Law Enforcement Assistance Act," or S.1483, is Iowa Republican Senator Chuck Grassley. The two senators introduced the measure in early August.
that nearly two million corporations and LLCs are established each year, and none currently are required to provide the names of the beneficial owners. Under the proposed law, these names, as well as identifying information, such as driver's license or passport numbers, would be submitted to the states. Companies bidding on federal contracts would have to provide this information, as well.
However, S. 1483 exempts some companies from the disclosure obligations. Among them are publicly traded firms, banks, broker-dealers, insurers, registered investment funds, charities, and companies with a substantial U.S. presence, including those with at least 20 employees physically located in the U.S.
The goal of the bill is to make it more difficult for individuals to engage in money laundering, terrorism, tax evasion or other crimes by playing such "shell games" to hide behind a shell corporation.
A 2006 study by the U.S. Treasury's Financial Crimes Enforcement Network (FinCen), "," came to this conclusion: "Domestic shell companies can be and have been used as vehicles for common financial crime schemes such as credit card bust outs, purchasing fraud, and fraudulent loans." While the report said that shell companies can have legitimate business purposes, it also notes that the use of domestic shell companies as parties in international wire transfers allows billions of dollars to move internationally by unknown beneficial owners.
, a professor at Griffith University in Brisbane, Australia, illustrates the ease with which an individual can open a shell corporation. For his research for "Shopping for Anonymous Shell Companies," Sharman contacted 54 companies that claimed to provide administration services for shell companies; 45 provided valid responses and said that they did provide these services.
Of those, 28 required official identification. None of the U.S. companies required this, and just four of 13 providers in other OECD countries did. On the other hand, "Attempts to incorporate anonymously with providers in the Bahamas, the British Virgin Islands, the Cayman Islands, Dominica, Nauru, Panama, and the Seychelles all met with failure," Sharman wrote.
While noting that the small size of his study may limit the finding's applicability, Sharman concludes, "these findings cast strong doubt on the proposition that the problem of financial opacity is caused by palm-fringed tropical islands, rather than large high-income economies like the United States and Britain."
The bill has gained a fair number of supporters, including both law enforcement organizations and some small business groups.
However, this is the third time that a version of this bill has been brought forward in the Senate; the two previous bills went nowhere.
In his speech on the Senate floor to introduce S. 1483, that many states are reluctant to address this issue. Instead, they are more intent on touting the ease with which individuals can establish companies within their borders. "The states are competing against each other to attract persons who want to set up U.S. corporations, and that competition creates pressure for each individual state to favor procedures that allow quick and easy incorporations, with no questions asked," he said.
The concern of the law's supporters: While such practices may enable states to attract legitimate businesses, they also have become an invitation to criminals.