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Beneficial Ownership Transparency #32
Increase transparency of company ownership and effective control.
Every year, over two million legal entities are formed in the United States—with many states collecting less information from the individuals forming these entities than from people applying for a driver’s license. This anonymity facilitates domestic and foreign corruption by allowing individuals to hide their identities and their corruptly obtained assets behind the façade of a U.S. corporation. Once a U.S. corporation is formed, it can easily open one or more bank accounts, wire money, buy property like any other company, and engage in activities that launder the tainted funds. Anonymous companies are also used by drug traffickers, arms smugglers and financiers of terrorism to hid and move illicit funds.
The Department of the Treasury indeed should enact its proposed rules from 2014, however these rules have several shortcomings and the executive branch should do more to strengthen beneficial ownership disclosure rules. The rules would require financial institutions to request beneficial ownership data from shell companies they do business with. But there would be no method to verify this information, the rules would only apply to shell company dealings with financial institutions, and they would have no bearing on the state laws governing the formation of these shell companies.
To address these gaps, Congress has previously attempted to pass bipartisan beneficial ownership disclosure legislation, however the bill counterproductively allowed states to restrict public access to this data. If no states are required to make this data publicly available, it is unlikely that any, particularly those eager to court new businesses, would voluntarily adopt stricter disclosure rules. The White House and the Department of the Treasury should nonetheless recognize that the political will to pass such legislation exists, and engage Congress to pass legislation requiring states to collect beneficial ownership data and disclose it as transparently as possible.