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[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 6098 Introduced in House (IH)]

111th CONGRESS
  2d Session
                                H. R. 6098

To amend title 31, United States Code, to ensure that persons who form 
  corporations in the United States disclose the beneficial owners of 
  those corporations, in order to prevent wrongdoers from exploiting 
United States corporations for criminal gain, to assist law enforcement 
 in detecting, preventing, and punishing terrorism, money laundering, 
  and other misconduct involving United States corporations, and for 
                            other purposes.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                            August 10, 2010

 Mrs. Maloney (for herself and Mr. Frank of Massachusetts) introduced 
 the following bill; which was referred to the Committee on Financial 
                                Services

_______________________________________________________________________

                                 A BILL

 
To amend title 31, United States Code, to ensure that persons who form 
  corporations in the United States disclose the beneficial owners of 
  those corporations, in order to prevent wrongdoers from exploiting 
United States corporations for criminal gain, to assist law enforcement 
 in detecting, preventing, and punishing terrorism, money laundering, 
  and other misconduct involving United States corporations, and for 
                            other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Incorporation Transparency and Law 
Enforcement Assistance Act''.

SEC. 2. FINDINGS.

    Congress finds the following:
            (1) Nearly 2,000,000 corporations and limited liability 
        companies are being formed under the laws of the States each 
        year.
            (2) Very few States obtain meaningful information about the 
        beneficial owners of the corporations and limited liability 
        companies formed under their laws.
            (3) A person forming a corporation or limited liability 
        company within the United States typically provides less 
        information to the State of incorporation than is needed to 
        obtain a bank account or driver's license and typically does 
        not name a single beneficial owner.
            (4) Criminals have exploited the weaknesses in State 
        formation procedures to conceal their identities when forming 
        corporations or limited liability companies in the United 
        States, and have then used the newly created entities to commit 
        crimes affecting interstate and international commerce such as 
        terrorism, drug trafficking, money laundering, tax evasion, 
        securities fraud, financial fraud, and acts of foreign 
        corruption.
            (5) Law enforcement efforts to investigate corporations and 
        limited liability companies suspected of committing crimes have 
        been impeded by the lack of available beneficial ownership 
        information, as documented in reports and testimony by 
        officials from the Department of Justice, the Department of 
        Homeland Security, the Financial Crimes Enforcement Network of 
        the Department of the Treasury, the Internal Revenue Service, 
        and the Government Accountability Office, and others.
            (6) In July 2006, a leading international anti-money 
        laundering organization, the Financial Action Task Force on 
        Money Laundering (in this section referred to as the ``FATF''), 
        of which the United States is a member, issued a report that 
        criticizes the United States for failing to comply with a FATF 
        standard on the need to collect beneficial ownership 
        information and urged the United States to correct this 
        deficiency by July 2008.
            (7) In response to the FATF report, the United States has 
        repeatedly urged the States to strengthen their incorporation 
        practices by obtaining beneficial ownership information for the 
        corporations and limited liability companies formed under the 
        laws of such States.
            (8) Many States have established automated procedures that 
        allow a person to form a new corporation or limited liability 
        company within the State within 24 hours of filing an online 
        application, without any prior review of the application by a 
        State official. In exchange for a substantial fee, 2 States 
        will form a corporation within 1 hour of a request.
            (9) Dozens of Internet websites highlight the anonymity of 
        beneficial owners allowed under the incorporation practices of 
        some States, point to those practices as a reason to 
        incorporate in those States, and list those States together 
        with offshore jurisdictions as preferred locations for the 
        formation of new corporations, essentially providing an open 
        invitation to criminals and other wrongdoers to form entities 
        within the United States.
            (10) In contrast to practices in the United States, all 27 
        countries in the European Union are required to have formation 
        agents identify the beneficial owners of the corporations 
        formed under the laws of the country.
            (11) To reduce the vulnerability of the United States to 
        wrongdoing by United States corporations and limited liability 
        companies with hidden owners, to protect interstate and 
        international commerce from criminals misusing United States 
        corporations and limited liability companies, to strengthen law 
        enforcement investigations of suspect corporations and limited 
        liability companies, to set minimum standards for and level the 
        playing field among State incorporation practices, and to bring 
        the United States into compliance with its international anti-
        money laundering obligations, Federal legislation is needed to 
        require the States to obtain beneficial ownership information 
        for the corporations and limited liability companies formed 
        under the laws of such States.

SEC. 3. TRANSPARENT INCORPORATION PRACTICES.

    (a) Transparent Incorporation Practices.--
            (1) In general.--Chapter 53 of title 31, United States 
        Code, is amended by inserting after section 5332 the following 
        new section:
``Sec. 5333. Transparent incorporation practices
    ``(a) Reporting Requirements.--
            ``(1) In general.--Not later than October 1, 2012, the 
        Secretary of the Treasury shall issue regulations requiring 
        each corporation and limited liability company formed in a 
        State that does not have an incorporation system described 
        under subsection (b) to file with the Secretary such 
        information as the corporation or limited liability company 
        would be required to provide the State if such State had an 
        incorporation system described under subsection (b).
            ``(2) Disclosure of beneficial ownership information.--
        Beneficial ownership information reported to the Secretary of 
        the Treasury pursuant to paragraph (1) shall be provided by the 
        Secretary of the Treasury upon receipt of--
                    ``(A) a civil or criminal subpoena or summons from 
                a State agency, Federal agency, or congressional 
                committee or subcommittee requesting such information; 
                or
                    ``(B) a written request made by a Federal agency on 
                behalf of another country under an international 
                treaty, agreement, or convention, or section 1782 of 
                title 28, United States Code.
    ``(b) Incorporation System.--With respect to a State, an 
incorporation system is described under this subsection if it meets the 
following requirements:
            ``(1) Each applicant to form a corporation or limited 
        liability company under the laws of the State is required to 
        provide to the State during the formation process a list of the 
        beneficial owners of the corporation or limited liability 
        company that--
                    ``(A) except as provided in paragraph (6), 
                identifies each beneficial owner by--
                            ``(i) name;
                            ``(ii) current address; and
                            ``(iii) non-expired passport issued by the 
                        United States or a non-expired drivers license 
                        issued by a State; and
                    ``(B) if any beneficial owner exercises control 
                over the corporation or limited liability company 
                through another legal entity, such as a corporation, 
                partnership, or trust, identifies each such legal 
                entity and each such beneficial owner who will use that 
                entity to exercise control over the corporation or 
                limited liability company.
            ``(2) Each corporation or limited liability company formed 
        under the laws of the State is required by the State to update 
        the list of the beneficial owners of the corporation or limited 
        liability company by providing the information described in 
        paragraph (1) to the State not later than 60 days after the 
        date of any change in the list of beneficial owners or the 
        information required to be provided relating to each beneficial 
        owner.
            ``(3) Beneficial ownership information relating to each 
        corporation or limited liability company formed under the laws 
        of the State is required to be maintained by the State until 
        the end of the 5-year period beginning on the date that the 
        corporation or limited liability company terminates under the 
        laws of the State.
            ``(4) Beneficial ownership information relating to each 
        corporation or limited liability company formed under the laws 
        of the State shall be provided by the State upon receipt of--
                    ``(A) a civil or criminal subpoena or summons from 
                a State agency, Federal agency, or congressional 
                committee or subcommittee requesting such information; 
                or
                    ``(B) a written request made by a Federal agency on 
                behalf of another country under an international 
                treaty, agreement, or convention, or section 1782 of 
                title 28, United States Code.
            ``(5) A corporation or limited liability company formed 
        under the laws of the State may not issue a certificate in 
        bearer form evidencing either a whole or fractional interest in 
        the corporation or limited liability company.
            ``(6) If any beneficial owner of a corporation or limited 
        liability company formed under the laws of the State is not a 
        United States citizen or a lawful permanent resident of the 
        United States, each application described in paragraph (1) and 
        each update described in paragraph (2) shall include a written 
        certification by a formation agent residing in the State that 
        the formation agent--
                    ``(A) has verified the name, address, and identity 
                of each beneficial owner that is not a United States 
                citizen or a lawful permanent resident of the United 
                States;
                    ``(B) has obtained for each beneficial owner that 
                is not a United States citizen or a lawful permanent 
                resident of the United States a legible and credible 
                copy of the pages of a government-issued passport 
                bearing a photograph and unique identifying information 
                for the beneficial owner;
                    ``(C) will provide proof of the verification 
                described in subparagraph (A) and the photograph 
                described in subparagraph (B) upon request; and
                    ``(D) will retain information and documents 
                relating to the verification described in subparagraph 
                (A) and the photograph described in subparagraph (B) 
                until the end of the 5-year period beginning on the 
                date that the corporation or limited liability company 
                terminates, under the laws of the State.
    ``(c) Penalties.--
            ``(1) In general.--It shall be unlawful for--
                    ``(A) any person to affect interstate or foreign 
                commerce by--
                            ``(i) knowingly providing, or attempting to 
                        provide, false or fraudulent beneficial 
                        ownership information, including a false or 
                        fraudulent identifying photograph, to a State 
                        or licensed formation agent under State law in 
                        accordance with this section;
                            ``(ii) willfully failing to provide 
                        complete or updated beneficial ownership 
                        information to a State or licensed formation 
                        agent under State law in accordance with this 
                        section; or
                            ``(iii) knowingly disclosing the existence 
                        of a subpoena, summons, or other request for 
                        beneficial ownership information from a law 
                        enforcement agency under State law in 
                        accordance with this section without written 
                        authorization from the law enforcement agency; 
                        or
                    ``(B) any licensed formation agent to affect 
                interstate or foreign commerce by willfully failing to 
                obtain or maintain credible and legible beneficial 
                ownership information, including any required 
                identifying photograph, under State law in accordance 
                with this section, or willfully failing to provide 
                beneficial ownership information in response to a 
                subpoena, summons, or other request from a law 
                enforcement agency in accordance with this section.
            ``(2) Civil and criminal penalties.--In addition to any 
        civil or criminal penalty that may be imposed by a State, any 
        person who violates paragraph (1) shall be liable to the United 
        States for a civil penalty of not more than $10,000.
    ``(d) Funding Authorization.--To carry out this section, during the 
3-year period beginning on the date of enactment of this section, upon 
application by a State, the Secretary shall make available to such 
State a reasonable amount of funding from the Department of the 
Treasury Forfeiture Fund established under section 9703(a) of title 31, 
United States Code.
    ``(e) Compliance Report.--Nothing in this section authorizes the 
Secretary to withhold from a State any funding otherwise available to 
the State because of a failure by that State to comply with this 
section. Not later than June 1, 2014, the Comptroller General of the 
United States shall submit to the Committee on Financial Services of 
the House of Representatives and the Committee on Homeland Security and 
Governmental Affairs of the Senate a report--
            ``(1) identifying which States obtain beneficial ownership 
        information as described in this section;
            ``(2) with respect to each State that does not obtain such 
        information, whether corporations and limited liability 
        companies formed under the laws of such State are in compliance 
        with this section and providing the specified beneficial 
        ownership information to the Secretary; and
            ``(3) whether the Department of the Treasury is in 
        compliance with this section and, if not, what steps it must 
        take to come into compliance with this section.
    ``(f) Definitions.--For the purposes of this section:
            ``(1) Beneficial owner.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `beneficial owner' means a 
                natural person who, directly or indirectly--
                            ``(i) exercises substantial control over a 
                        corporation or limited liability company; or
                            ``(ii) has a substantial interest in or 
                        receives substantial economic benefits from the 
                        assets of the corporation or limited liability 
                        company described in clause (i).
                    ``(B) Exceptions.--The term `beneficial owner' does 
                not include--
                            ``(i) a minor child;
                            ``(ii) a person acting as a nominee, 
                        intermediary, custodian, or agent on behalf of 
                        another person;
                            ``(iii) a person acting solely as an 
                        employee of a corporation or limited liability 
                        company, and whose control over or economic 
                        benefits from the corporation or limited 
                        liability company derive solely from the 
                        employment status of the individual;
                            ``(iv) a person whose only interest in the 
                        corporation or limited liability company is 
                        through a right of inheritance, unless the 
                        individual also meets the requirements of 
                        subparagraph (A); or
                            ``(v) a creditor of a corporation or 
                        limited liability company, unless the 
                        individual also meets the requirements of 
                        subparagraph (A).
                    ``(C) Limitation.--A beneficial owner meeting the 
                requirements for an entity under paragraph (2)(B) may 
                provide the name of the entity instead of the name of a 
                natural person.
            ``(2) Corporation; limited liability company.--The terms 
        `corporation' and `limited liability company'--
                    ``(A) have the meanings given such terms under the 
                laws of the applicable State;
                    ``(B) do not include any entity that is, and 
                discloses in the application by the entity to form 
                under the laws of the State or, if the entity was 
                formed before the date of the enactment of this 
                section, in a filing with the State under State law--
                            ``(i) a business concern that is an issuer 
                        of a class of securities registered under 
                        section 12 of the Securities Exchange Act of 
                        1934 (15 U.S.C. 781) or that is required to 
                        file reports under section 15(d) of that Act 
                        (15 U.S.C. 78o(d));
                            ``(ii) a business concern formed by a 
                        State, a political subdivision of a State, 
                        under an interstate compact between 2 or more 
                        States, by a department or agency of the United 
                        States, or under the laws of the United States;
                            ``(iii) a depository institution (as 
                        defined in section 3 of the Federal Deposit 
                        Insurance Act (12 U.S.C. 1813));
                            ``(iv) a credit union (as defined in 
                        section 101 of the Federal Credit Union Act (12 
                        U.S.C. 1752));
                            ``(v) a financial holding company (as 
                        defined in section 2 of the Bank Holding 
                        Company Act of 1956 (12 U.S.C. 1841));
                            ``(vi) a broker or dealer (as defined in 
                        section 3 of the Securities Exchange Act of 
                        1934 (15 U.S.C. 78c)) that is registered under 
                        section 15 of the Securities and Exchange Act 
                        of 1934 (15 U.S.C. 78o);
                            ``(vii) an exchange or clearing agency (as 
                        defined in section 3 of the Securities Exchange 
                        Act of 1934 (15 U.S.C. 78c)) that is registered 
                        under section 6 or 17A of the Securities 
                        Exchange Act of 1934 (15 U.S.C. 78f and 78q-1);
                            ``(viii) an investment company (as defined 
                        in section 3 of the Investment Company Act of 
                        1940 (15 U.S.C. 80a-3)) or an investment 
                        advisor (as defined in section 202(11) of the 
                        Investment Advisors Act of 1940 (15 U.S.C. 80b-
                        2(11)), if the company or adviser is registered 
                        with the Securities and Exchange Commission, or 
                        has filed an application for registration which 
                        has not been denied, under the Investment 
                        Company Act of 1940 (15 U.S.C. 80a-1 et seq.) 
                        or the Investment Advisor Act of 1940 (15 
                        U.S.C. 80b-1 et seq.);
                            ``(ix) an insurance company (as defined in 
                        section 2 of the Investment Company Act of 1940 
                        (15 U.S.C. 80a-2));
                            ``(x) a registered entity (as defined in 
                        section 1a of the Commodity Exchange Act (7 
                        U.S.C. 1a)), or a futures commission merchant, 
                        introducing broker, commodity pool operator, or 
                        commodity trading advisor (as defined in 
                        section 1a of the Commodity Exchange Act (7 
                        U.S.C. 1a)) that is registered with the 
                        Commodity Futures Trading Commission;
                            ``(xi) a public accounting firm registered 
                        in accordance with section 102 of the Sarbanes-
                        Oxley Act (15 U.S.C. 7212);
                            ``(xii) a public utility that provides 
                        telecommunications service, electrical power, 
                        natural gas, or water and sewer services, 
                        within the United States;
                            ``(xiii) a charity or nonprofit entity that 
                        is described in section 501(c), 527, or 
                        4947(a)(1) of the Internal Revenue Code of 
                        1986, has not been denied tax exempt status, 
                        and has filed the most recently due annual 
                        information return with the Internal Revenue 
                        Service, if required to file such a return;
                            ``(xiv) any business concern that--
                                    ``(I) employs more than 20 
                                employees on a full time basis in the 
                                United States;
                                    ``(II) files income tax returns in 
                                the United States demonstrating more 
                                than $10,000,000 in gross receipts or 
                                sales; and
                                    ``(III) has an operating presence 
                                at a physical office within the United 
                                States; or
                            ``(xv) any corporation or limited liability 
                        company formed and owned by an entity described 
                        in clause (i), (ii), (iii), (iv), (v), (vi), 
                        (vii), (viii), (ix), (x), (xi), (xii), (xiii), 
                        or (xiv); and
                    ``(C) do not include any individual business 
                concern or class of business concerns which the 
                Secretary of the Treasury, with the written concurrence 
                of the Attorney General of the United States, has 
                determined in writing should be exempt from the 
                requirements of subsection (a), because requiring 
                beneficial ownership information from the business 
                concern would not serve the public interest and would 
                not assist law enforcement efforts to detect, prevent, 
                or punish terrorism, money laundering, tax evasion, or 
                other misconduct.
            ``(3) Formation agent.--The term `formation agent' means a 
        person who, for compensation, acts on behalf of another person 
        to assist in the formation of a corporation or limited 
        liability company under the laws of a State.''.
            (2) Rulemaking.--To carry out this Act and the amendments 
        made by this Act, the Secretary of the Treasury, in 
        consultation with the Secretary of Homeland Security and the 
        Attorney General of the United States, may issue guidance or a 
        rule to clarify application of the definitions added by this 
        Act, or to specify how to verify beneficial ownership 
        information.
            (3) Conforming amendments.--Title 31, United States Code, 
        is amended--
                    (A) in section 5321(a)--
                            (i) in paragraph (1), by striking 
                        ``sections 5314 and 5315'' each place it 
                        appears and inserting ``sections 5314, 5315, 
                        and 5333''; and
                            (ii) in paragraph (6), by inserting 
                        ``(except section 5333)'' after ``subchapter'' 
                        each place it appears; and
                    (B) in section 5322, by striking ``section 5315 or 
                5324'' each place it appears and inserting ``section 
                5315, 5324, or 5333''.
            (4) Table of contents.--The table of contents of Chapter 53 
        of title 31, United States Code, is amended by inserting after 
        the item relating to section 5332 the following:

``Sec. 5333. Transparent incorporation practices.''.
            (5) Restrictions on public access.--A State may--
                    (A) restrict public access to all or any portion of 
                the beneficial ownership information provided to the 
                State as described under section 5332 of title 31, 
                United States Code, as added by this Act; and
                    (B) by statute, regulation, order, or 
                interpretation adopted or issued by the State after the 
                date of enactment of this Act, provide for public 
                access to all or any portion of such information.
            (6) No duty of verification.--This Act and the amendments 
        made by this Act do not impose any obligation on a State to 
        verify the name, address, or identity of a beneficial owner 
        whose information is submitted to such State under section 5332 
        of title 31, United States Code, as added by this Act.
    (b) Anti-Money Laundering Obligations of Formation Agents.--
            (1) In general.--Section 5312(a)(2) of title 31, United 
        States Code, is amended--
                    (A) in subparagraph (Y), by striking ``or'' at the 
                end;
                    (B) by redesignating subparagraph (Z) as 
                subparagraph (AA); and
                    (C) by inserting after subparagraph (Y) the 
                following:
                    ``(Z) any person involved in forming a corporation 
                or limited liability company; or''.
            (2) Deadline for anti-money laundering rule for formation 
        agents.--
                    (A) Proposed rule.--Not later than 90 days after 
                the date of enactment of this Act, the Secretary of the 
                Treasury, in consultation with the Attorney General of 
                the United States and the Commissioner of the Internal 
                Revenue Service, shall publish a proposed rule in the 
                Federal Register requiring persons described in section 
                5312(a)(2)(Z) of title 31, United States Code, as 
                amended by this subsection, to establish anti-money 
                laundering programs under subsection (h) of section 
                5318 of that title.
                    (B) Final rule.--Not later than 270 days after the 
                date of enactment of this Act, the Secretary of the 
                Treasury shall publish the rule described in this 
                subsection in final form in the Federal Register.
                    (C) Exclusions.--Any rule promulgated under this 
                subsection shall exclude from the category of persons 
                involved in forming a corporation or limited liability 
                company--
                            (i) any government agency; and
                            (ii) any attorney or law firm that uses a 
                        paid formation agent operating within the 
                        United States to form the corporation or 
                        limited liability company.

SEC. 4. STUDY AND REPORT BY GOVERNMENT ACCOUNTABILITY OFFICE.

    Not later than 1 year after the date of enactment of this Act, the 
Comptroller General of the United States shall conduct a study and 
submit to the Congress a report--
            (1) identifying each State that has procedures that enable 
        persons to form or register under the laws of the State 
        partnerships, trusts, or other legal entities, and the nature 
        of those procedures;
            (2) identifying each State that requires persons seeking to 
        form or register partnerships, trusts, or other legal entities 
        under the laws of the State to provide information about the 
        beneficial owners (as that term is defined in section 
        5333(d)(1) of title 31, United States Code, as added by this 
        Act) or beneficiaries of such entities, and the nature of the 
        required information;
            (3) evaluating whether the lack of available beneficial 
        ownership information for partnerships, trusts, or other legal 
        entities--
                    (A) raises concerns about the involvement of such 
                entities in terrorism, money laundering, tax evasion, 
                securities fraud, or other misconduct; and
                    (B) has impeded investigations into entities 
                suspected of such misconduct; and
            (4) evaluating whether the failure of the United States to 
        require beneficial ownership information for partnerships and 
        trusts formed or registered in the United States has elicited 
        international criticism and what steps, if any, the United 
        States has taken or is planning to take in response.
                                 <all>
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