Statements On Introduced Bills And Joint Resolutions

Floor Speech

BREAK IN TRANSCRIPT

Mr. GRASSLEY. Mr. President, I rise to speak on the same bill the Senator from Michigan spoke on, but I ought to compliment him. He is most known for being a leader in the area of military affairs because of being chairman of that committee. But for sure, for years he has been also a chairman of the Permanent Subcommittee on Investigations and so much of the work that comes out of this legislation comes out of his work on that committee. I think he ought to be commended for the work he does through investigations there as well.

I am happy to join Senator Levin and Senator McCaskill in cosponsoring the Incorporation Transparency and Law Enforcement Assistance Act. This bill requires States to obtain corporate ownership information at the time of formation and help law enforcement investigate shell companies which are set up for the sole purpose of conducting illegal activities.

Earlier this year, Senator Levin joined me when I introduced a bill that we entitled the Hedge Fund Transparency Act. I said then that the major cause of the current financial crisis is a lack of transparency among hedge funds. That same thing can be said about corporate ownership. In too many States, very little ownership information is needed to register a corporation, and the actual owners of that corporation are often hidden behind the agents and lawyers who register the corporation on behalf of owners.

One example of how these criminals take advantage of this lack of transparency is the practice of setting up and using shell corporations to hide corporate ownership information. These individuals set up shell corporations that have the benefits of corporate registration and function legitimately. But these same corporations are being used to hide illegal activities. These activities include a variety of elaborate schemes to disguise money laundering, tax evasion, and securities fraud. Law enforcement officials from the Department of Justice and the Internal Revenue Service have testified before Congress about how the lack of corporate information has been a very significant impediment to their ability to conduct criminal investigations.

For example, when a corporation is involved in illegal activities, the legitimate corporate owners are often hidden, making it difficult for law enforcement agencies to determine who is actually responsible. That, in turn, makes it difficult to bring the real culprits to justice. States differ as to what corporate information is required to register a corporation and how long it takes to process that paperwork. Most States require only the name of the company, the name and address of the agent, a signature, and, of course, a fee.

In fact, the Government Accountability Office found that most States will take the time to verify that the fee has been paid but do not take the time to verify the identities of the incorporators, officers, and directors. Perhaps even more important, no State checks the names of incorporators, officers, or directors against criminal records and the watch lists that sometimes Federal agencies have. As a result, we have no way of knowing if the beneficial owners are criminals, or they could even be terrorists, for that matter. Many States now have introduced electronic registration procedures that enable a new corporation to be registered on line within 24 hours. States offer this expedited service in exchange for yet an additional fee. In fact, there are two States where an individual can form a corporation within 1 hour of making the request. The promise of quick registration and little oversight has proven to be a very popular revenue generator for some States. But this process is not necessarily in the best interest of protecting our financial system or our national security.

Some States have raised concerns that if their incorporation laws are tightened, corporations will simply register in other States where there are less stringent registration requirements. This bill is to take care of that problem. It is designed to bring some sanity to this whole process. It makes the registration requirement uniform over all 50 States, as well as the District of Columbia. This way corporations will simply not be able to ``shop around'' for the State with the most relaxed standards and simply play one State against the other. Further, much of the information set forth in this bill is already required by the European Union and many offshore jurisdictions. This bill simply updates our laws to match those of other nations combating the same problems with money laundering, tax evasion, and terrorist financing.

The legislation I am introducing today with Senators Levin and McCaskill requires that States obtain a list of the beneficial owners of each corporation or limited liability company formed under their laws before the corporation is registered in that particular State. The bill also requires that States ensure required information is updated annually and that States provide the information to civil or criminal law enforcement agencies upon receipt of a subpoena or summons. This also establishes a civil penalty of up to $10,000 and a criminal penalty of up to 3 years in prison for providing false information.

Additionally, the bill would exempt publicly traded companies that are already regulated by the Securities and Exchange Commission. Further, the bill requires non-U.S. beneficial owners to provide certification from an in-State agent that verifies the identity of the beneficial owner.

Finally, this bill requires the Government Accountability Office to complete a study of State beneficial ownership information requirements for in-State partnerships and trusts and gives the States until October 2011 to require beneficial ownership information for the corporations and limited liability companies formed under their laws.

I urge colleagues to cosponsor and support this legislation as we try to bring greater transparency to our financial system.

BREAK IN TRANSCRIPT

Source