Originally introduced in 2017, arguably in response to the Panama Papers, the Corporate Transparency Act has been re-introduced to the House Financial Services Committee as proposed legislation for the 2019 Congressional Session. The bill will require “an entity that forms a corporation or limited liability company to disclose information about its beneficial owners” … which is a concept heavily supported by businesses, financial institutions, scholars, real estate association, state attorneys general and other members of the Administration. Many NGOs, like the FACT Coalition, endorse the legislation believing that requiring this information be available will facilitate ending "the use of anonymous shell companies as a vehicle of illicit activity."
However, the proposed legislation is faced with challenges surrounding who will collect and manage the information. One part believes the responsibility should fall with the IRS or the State Governments. A concern surrounding the IRS control is the information would have very limited accessibility as it would become “tax information” once collected and fall under those legal provisions. “When states or IRS officials have them, law enforcement needs to show due cause in most cases to obtain and serve a subpoena to get data," said Hal Crawford, a Managing Director with Alvarez & Marsal’s Financial Industry Advisory Services to Bloomberg Law.
An alternative solution is for FinCEN to carry the burden since their database that is already equipped to gather reported information and relevant parties like law enforcement, state officials, and/or designated banking officials have established accessibility to that information. However, if FinCEN is chosen to be responsible, will they act as an archival tool or will they actively verify the information provided? For industry practitioners, “The first thing I thought of is who is going to have the onus of verifying,” said Michael Carter, a senior director with Alvarez & Marsal’s Disputes and Investigations practice to Bloomberg Law. “How do we verify that those reports are correct, that certain persons or entities have been omitted from those beneficial ownership forms or reports?”
The United Kingdom provides a public corporate registry with beneficial ownership information; however, does not verify the accuracy of the information provided. If the U.S. adopts a similar model with less transparency, would the legislation be a win because it’s a step in the right direction or a loss because it is only one – small – step?
Maloney’s Corporate Transparency Act, if passed, could address a years-long call for heightened oversight on the use of “shell” companies for money laundering, tax evasion and terrorist financing.