Legislation Is Targeting 'Shell Games'

Current U.S. law allows individuals to form a corporation without identifying who will own the company. "Today, it takes more information to obtain a driver's license or open a U.S. bank account than it does to form a U.S. corporation," Michigan Democratic Senator Carl Levin said in that would require each state to obtain the names of beneficial owners of corporations or limited liability companies (LLCs) formed under the state's laws.

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.