Federal Securities Law Blog

Earlier this week the U.S. Senate began consideration of a bill that would require States to obtain the identity of a corporation’s beneficial owners as part of the incorporation process.  Most states allow the formation of a variety of business entities without asking for the names of owners. Numerous law enforcement agencies claim criminals use corporations to hide money laundering and tax fraud.

The bill is called the Incorporation Transparency and Law Enforcement Assistance Act, sponsored by Sen. Carl Levin and Sen. Chuck Grassley (the same Senators who recently introduced the Hedge Fund Transparency Act), along with Sen. Claire McCaskill.  President Obama was also a sponsor when it was introduced last year.  The Senate’s Permanent Subcommittee on Investigations has been pursuing this issue since 2000.

The Government Accountability Office and the Senate Subcommittee cite numerous examples of criminals using business entities to break the law and avoid individual identification.  It seems that criminal activity would be easier to combat if law enforcement could readily obtain names of business owners, but the costs of implementation of this program are difficult to measure at this point.

Implementation will clearly have costs for every state, but the costs may be outweighed by the benefits to law enforcement.  The current regulatory climate of Washington is on the rise, but this bill could prompt an interesting alliance between privacy advocates and business supporters.  It is not hard to imagine privacy advocates not liking a bill that could subject individuals to scrutiny for forming a business entity that for whatever reason is disliked by government.  Nor is it hard to imagine business advocates not liking a bill that impedes what are sometimes competitive reasons for forming a business in secret.  Although, to be fair, the bill indicates the names of owners would only be available if requested by law enforcement or required by subpoena.