Hearing Of The Senate Committee On Homeland Security And Governmental Affairs Committee - "Business Formation And Financial Crime: Finding A Legislative Solution"

Statement

Good morning and welcome to our hearing today. This is our
Committee's second hearing on the Incorporation Transparency and Law
Enforcement Assistance Act, S. 569, which was introduced by Senators
Levin and McCaskill, who are members of this Committee, and by Senator
Grassley, Ranking Member of the Finance Committee. This legislation - the
result of work by Senator Levin's Permanent Subcommittee on
Investigations over the years, - seeks to increase the transparency of business
formation practices in order to reduce what is estimated as billions of dollars
in fraud perpetrated by shell corporations.
Each year, nearly two million new corporations and limited liability
companies are established in the 50 states and the District of Columbia.
That's comes to more than 5,000 new businesses per day. This is really the
American way - entrepreneurship at its best: generating revenue and creating
jobs.

But, each year, some of those new businesses are incorporated for
improper or illegal purposes--to try to use registered corporations to defraud
innocent people, to cheat tax authorities, to hide the true transactions, or to
launder ill-gotten funds.
Right now, a majority of states require some basic information from
those seeking to establish a corporation. Most require the name and address
of the company, the name of a registered agent, who represents the
company, and a list of officers and or directors. This information is typically
considered a public record.
But most states allow the individuals with actual ownership interest --
including the investors who control the corporation or partnership -- to
remain anonymous to state authorities and, therefore, to the public. And this
is a problem for law enforcement
Senator Levin's bill offers one solution: setting a national minimum
standard for state incorporation practices that requires states to collect,
maintain, and update so-called "beneficial ownership" information.

But there are critics of this method who argue that a well-intended
desire for more sunshine must be weighed against other factors, including
the privacy rights of those making personal investment decisions, and the
potential costs of administration and enforcement that would fall on
companies and state governments.
Our goal today is to hear today from experts in this problem so we can
make a judgment about how to deal with what everyone considers a
problem.
We have a series of witnesses today who will help us sort out the
benefits and consequences of S.569. On the first panel, we will hear for the
first time from the Treasury Department, which administers anti-money
laundering laws and leads U.S. efforts to stop the flow of terrorist financing.
Treasury has worked tirelessly on corporate transparency issues, engaging
with stakeholders to consider all the possible approaches to improving
practices in this area. We will also hear from the Department of Justice,
which has first-hand experience in the challenges of law-enforcement s they
try to combat the use of corporations for nefarious purposes.

Our second panel of witnesses represents the business and legal
communities, which have distinct concerns about the smooth flow of
commerce for legitimate corporate purposes. We will also hear from a
representative of the Federal Law Enforcement Officers Association and an
expert on tax havens, both of whom support the general approach taken by
the bill.
So, this is an interesting and important matter on which we hope to
shed some light this morning.
Thank you. Senator Collins?

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