Stars start to align for bill to outlaw shell corporations

A bill that would clamp down on anonymous shell corporations that are popular with money launderers, fraudsters and those with something to hide has been gathering dust in Congress for five years. Now, its backers say odds are looking up that it might actually see the light of day.

The measure, co-sponsored by Sen. Carl Levin (D-Michigan) and Rep. Carolyn Maloney (D-New York) would outlaw these secret corporations in the U.S. by requiring the naming of the actual owners – the “beneficial owners” – of those setting up corporations in the 50 states. 

This has long been a goal of law enforcement trying to follow the trail of potential lawbreakers who hide their financial transactions behind these shell corporations.  Delaware, Nevada and Wyoming, in particular, have been singled out for their warm embrace of these front companies.  Opposition comes mainly from secretaries of state throughout the country, who see it as a costly and unnecessary regulatory burden, and from some business interests as well. 

“We are more optimistic this session of Congress than at any time in the past,’’ said Josh Simmons, an attorney with Global Financial Integrity, a Washington nonprofit that has long championed the measure.  Even with Congress moving at a snail’s pace, Mr. Simmons thinks it is possible that the measure might actually get a Congressional hearing sometime before the August recess, which is an important first step.  Perhaps it could even be attached to another bill en route to passage. 

The reason for this burst of optimism, however guarded, is from a recent confluence of events.  Rep. Peter King (R-New York) signed on last month as a co-sponsor, making it a bi-partisan measure in the House. Another co-sponsor, Rep. Maxine Waters (D-California) is a ranking member of the House committee to which the bill has been assigned, which is a big boost.

In the Senate, Sen. Sheldon Whitehouse (D-Rhode Island) signed on as a co-sponsor last January.  He and Sen. Diane Feinstein, a longtime co-sponsor, are both members of the Senate Judiciary, which is the Senate committee assigned to the measure, and are expected to lend a hand.  In addition, Judiciary’s senior Republican, Sen. Chuck Grassley, is the bill’s chief GOP cosponsor. 

If stars are aligning in Congress, backers of the measure are also heartened that pressure is coming from overseas as more countries begin to require greater identification of corporate owners.  England recently announced the creation of a public registry that would provide names of corporate owners.  Meanwhile both the G-8 and G-20 countries have backed some form of beneficial owner identification.  Just this week, the European parliament voted in favor of requiring a public registry for companies incorporated in the European Union, similar to the one in England. 

“We’re seeing this issue getting some real critical mass,’’ said Mr. Simmons.  “Right now, the U.S. is behind. I think the Congress will have no chance but to take this up. There is more political momentum behind it.” 

An additional boost is coming in the form of the $1 million TED prize that was announced on March 18 and given to Global Witness, a London and Washington nonprofit that has long advocated for an end to secret corporations and offshore havens.  Part of the prize money will go to technologists helping to design public registries that identify corporate ownership. Other projects will be designed to spur advocacy, including pressing businesses and Congress on the issue.  Previous recipients of TED prize have included Bono and Jamie Oliver, the British healthy food advocate. Along with money, the prize is expected to bring a lot of global awareness to the problem – and Global Witness hopes that Congress will take notice. 

Sen. Levin thinks it might.  In a press release, Mr. Levin said that “Global Witness’ plan to use its $1 million TED Prize to fight for corporate transparency will add momentum to the calls by police agencies, anti-corruption groups, human rights organizers, business groups and labor organizations to pass our bill.”

For her part, Charmian Gooch, who is the chairman of Global Witness, said the prize will be used “to make it impossible for criminals and corrupt dictators to hide behind anonymous shell corporations.” 

Those might be powerful words, but the political reality in Congress more complicated.  No one is breaking out the champagne yet, especially considering the current Congressional gridlock.  Even more, powerful forces are lined up against the measure.  The biggest comes from the National Association of Secretaries of State.  Their clout comes from the fact that this group has close personal ties to members of Congress, not just in a few states, but in all 50.  NASS argues, in a statement, that the measure is a “confusing, overly bureaucratic proposal” and is “not only unnecessary, it is also not an appropriate, effective or efficient strategy for tracking beneficial ownerships information” or for ’’exposing criminals and terrorists.”  Instead, NASS proposes tracking beneficial ownership through federal tax filings and bank due diligence reports. 

No one doubts that moving to slim from nonexistent is a positive step for the measure’s outlook. GovTrack.US, a nonpartisan website that follows Congressional measures, gives the bill a two percent chance of passage.  That looks like an awfully small chance. Still, it may not look so bad when you realize that only three percent of all bills proposed ever get enacted.  

Editor's note: The story has been updated to reflect Senate Judiciary members Sen. Diane Feinstein's and Sen. Chuck Grassley's support for the bill.

 

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