The so-called Incorporation Transparency and Law Enforcement Assistance Act would end the ability of corporations to be set up on behalf of “unidentified persons”, and instead “require [all 50] states to obtain the identities of the persons behind the corporations formed under their laws”, according to a summary of the new legislation on the website of Sen Carl Levin, the Democrat from Michigan who is chairman of the Permanent Subcommittee on Investigations, and one of the senators behind the bill.
The bill was introduced at the end of last week, as Congress prepared to break for its annual August recess.
Levin has been an active crusader against tax evasion in Washington circles for years, and is perhaps best known abroad for his role as a sponsor of the Stop Tax Haven Abuse bill, a version of which was incorporated into the Foreign Account Tax Compliance Act of 2010, which was embedded in a domestic jobs bill known as the HIRE Act.
‘Harder to get a driver’s licence’
“Today, it takes more information to obtain a driver’s licence or open a US bank account than it does to form a US corporation,” Sen Levin noted, in a statement.
“Our states don’t require anyone to name the owners of the corporations being formed under their laws, and the United States is currently one of the world’s biggest offenders in terms of creating corporations with hidden owners.
“In June, President Obama stood with other international leaders at a G8 summit to condemn corporations with hidden owners who commit crimes, tax evasion, and other wrongdoing. The G8 leaders made a joint commitment to combat that problem.
“If the United States wants to maintain its leadership and credibility on ending tax avoidance and corporate secrecy in tax havens, we need to get our own house in order.”
The US also needs to listen to the law enforcement community, which supports the proposed bill legislation and which “has been urging us for years to put an end to [the] corporate secrecy used to hide criminal conduct”, Sen Levin added.
Other sponsors of the legislation in addition to Levin include Iowa Republican Sen Chuck Grassley, a ranking member of the Senate Judiciary Committee; California Democratic Sen Dianne Feinstein; and Iowa Democratic Sen Tom Harkin.
‘Easy’ jurisdiction for shell company formation
As reported here last year, a major new report – said by its authors to have been “the most robust test” ever conceived to measure just how well various jurisdictions enforce international rules that ban the use of untraceable, anonymous shell companies – found that the US is one of the easiest companies in which to set up a "shell" company, which is normally defined as a company with few or no significant assets or operations that serves as a vehicle for business transactions that may or may not be legal.
According to that report, the only eight jurisdictions in which its authors were unable to get anywhere in their attempts to set up a shell company, out 61 countries in which at least 25 approaches were made, were the United Arab Emirates, the Seychelles, Jordan, Jersey, Israel, Denmark, the Cayman Islands and the Bahamas.
The United States and the UK were among a number of OECD countries that ended up in the bottom third of the list, which saw Kenya at the very bottom, and Canada nearly there.
Levin echoes many of that report’s conclusions, noting that the US is the birthplace every year for almost two million corporations and limited liability companies – more than the rest of the world combined – and yet does not insist on obtaining the identity of the owners at the time they are being formed.
As currently written, the Levin-Grassley-Feinstein-Harkin bill would require the states to add a single question to their existing incorporation forms, requesting the names of the natural persons – the beneficial owners – behind every corporation being formed.
States would not be required to verify the information, but penalties would apply to persons who submitted false information.
Law enforcement agencies would be given access to the information upon presentation of a subpoena or summons. Corporations bidding on federal contracts would have to provide the same beneficial ownership information to the federal government to ensure the United States knows with whom it is doing business.
Regulated corporations whose ownership is already known, including publicly traded corporations, banks, and securities firms, would be exempt from the disclosure requirement.
Growing awareness of tax haven image
David Treitel, managing director of London-based American Tax Returns ltd, which looks after American expatriates’ tax affairs, said the proposed legislation may be seen as an indication of a growing awareness inside the US of America’s image, in certain circles outside its borders at least, as a tax haven.
Other countries, meanwhile, are likely to view the latest Levin bill as a sign of a possible new willingness on the part of the US to reciprocate on information exchange – something that, until now, the US has been seen as having been reluctant to commit to, despite expecting it of other countries as it seeks to implement FATCA, he added.
“What we don’t know is how likely this legislation is to become law,” Treitel said.
“Lots of bills get introduced that never get anywhere near being passed. In the case of this legislation, there could be issues on the part of some of the states, which might not feel Washington has a right to get involved in the way they legislate the setting up of companies within their borders. And there might also be resistance by American civil libertarians, as personal privacy is highly valued in the US."
To read and download a copy of a media summary of "Global Shell Games: Test Money Launderers’ and Terrorist Financiers’ Access to Shell Companies", click here.
