A proposed bill to crack down on anonymous shell companies passed a House of Representatives vote Tuesday and will progress to the Senate.

The Corporate Transparency Act, sponsored by Rep. Carolyn Maloney (D-N.Y.), would require companies to disclose their true, beneficial owners at the time the company is formed. It aims to prevent bad actors from using anonymous shell companies to thwart law enforcement and hide their illicit activities.

What the Corporate Transparency Act would do

  • Requires corporations and limited liability companies disclose their true, beneficial owners to FinCEN at the time the company is formed.
  • Establishes minimum beneficial ownership disclosure requirements: must provide beneficial owners’ name, date of birth, current address, and driver’s license or non-expired passport number.
  • Requires companies to file annually with FinCEN a list of its current beneficial owners, as well as a list of any changes in beneficial ownership that occurred during the previous year.
  • Provides civil and criminal penalties for persons who willfully submit false or fraudulent beneficial ownership information, or who knowingly fail to provide complete or updated beneficial ownership information.

Source: Rep. Carolyn Maloney (D-N.Y.)

“The illicit use of anonymous shell companies is one of the most pressing national security problems we currently face,” said Maloney in a statement announcing the victory. “They are being used by money launderers, criminals, and terrorists—but we can stop that. We’re the only advanced country in the world that doesn’t already require disclosure of this information—and frankly, it’s an embarrassment. We owe this to law enforcement.”

Cosponsors of the bill, H.R. 2513, include Reps. Peter King (R-N.Y.) and Tom Malinowski (D-N.J.). Rep. Emanuel Cleaver (D-Mo.) had his Coordinating Oversight, Upgrading and Innovating Technology, and Examiner Reform (COUNTER) Act, which proposed similar anti-money laundering (AML) changes to the Bank Secrecy Act, added as a manager’s amendment.

“There is no better way for America to stand up for people suffering under repressive regimes around the world than by cutting off their corrupt leaders’ ability to launder money through shell companies and real estate on American soil,” said Malinowski. “I am proud the House passed the Corporate Transparency Act today, and I urge the Senate to take up this vital bipartisan legislation immediately.”

Though the bill passed by a 249-173 margin, there is uncertainty regarding how it will fare in the Senate, where Sen. Mark R. Warner (D-Va.) recently introduced a similar bill. The Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (ILLICIT CASH) Act would require shell companies to disclose their true owners to the U.S. Department of Treasury.

The ILLICIT Cash Act, introduced Sept. 26, has been referred to the Committee on Banking, Housing, and Urban Affairs.

The American Bankers Association (ABA) has thrown its support behind both the ILLICIT Cash Act and the Corporate Transparency Act as it pushes for an update to the AML controls of the Bank Secrecy Act. A letter sent to the House on Monday included 51 state bankers associations (including Puerto Rico) supporting the Corporate Transparency Act.

“[The] House passage of the Corporate Transparency Act of 2019 is a critical step forward in modernizing the Anti-Money Laundering/Bank Secrecy Act framework that will help prevent bad actors from accessing the financial system,” said ABA President and CEO Rob Nichols in a statement. “… We urge the Senate to build on this momentum and move quickly to pass its own bipartisan bill.”

Also supporting the Corporate Transparency Act is the White House, which “believes this legislation represents important progress in strengthening national security, supporting law enforcement, and clarifying regulatory requirements.” However, the Trump Administration added the bill can be improved in the following ways:

  • Aligning the definition of ‘beneficial owner’ to the Financial Crimes Enforcement Network’s Customer Due Diligence Final Rule;
  • Protecting small businesses from unduly burdensome disclosure requirements; and
  • Providing for adequate access controls with respect to the information gathered under this bill’s new disclosure regime.

Protecting small businesses has been the focus of those skeptical of the bill, which includes ranking member on the Financial Services Committee Rep. Patrick McHenry (R-N.C.). McHenry has also warned of the bill’s implications on privacy.

“We need to deploy every tool in our arsenal to stop financing of terrorists and criminal activity,” McHenry said upon the bill passing a Financial Services Committee vote in June. “But I’m very concerned that we do not have the basic data we need to understand the impact of this bill, or at a minimum, whether this bill is even needed.”

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