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American Shipper

TITLE Act widely viewed as key element of fighting financial corruption

The True Incorporation Transparency for Law Enforcement (TITLE) Act would require disclosure of beneficial ownership during a company’s incorporation process in the United States.

   The ability to incorporate in the U.S. without being subject to the same level of beneficial ownership transparency requirements as other developed Western nations has allowed this country to be exploited by human traffickers, terrorists, and other transnational criminal elements seeking to launder their profits and avoid scrutiny, senators and testifiers agreed during a Tuesday hearing.
   Senate Judiciary Committee Chairman Chuck Grassley, R-Iowa, Sen. Sheldon Whitehouse, D-R.I., and three testifiers during a full committee hearing agreed that enactment of a June-introduced bill would help curb U.S. economic exposure to white-collar crime, which has increased since the United Kingdom and other European countries recently established stricter beneficial ownership reporting requirements.
   Introduced by Whitehouse and co-sponsored by Grassley and Sen. Dianne Feinstein, D-Calif., the True Incorporation Transparency for Law Enforcement (TITLE) Act, among other things, would require disclosure of beneficial ownership during a company’s incorporation process in the U.S.
   Used in domestic and international law, the term “beneficial ownership” generally applies to anyone who benefits from property or security ownership, without being recorded as the owner.
   “Customer Due Diligence” rules drafted by Treasury’s Financial Crimes Enforcement Network (FinCEN) will come into effect May 11.
   The rules will apply to U.S. financial institutions, and will require them to establish and maintain written procedures “reasonably designed to identify and verify the beneficial owners of legal entity customers.”
   Procedures must generally “enable” the institution to identify beneficial owners of each customer when a new account is opened.
   In his written hearing testimony, Clay Fuller, an American Enterprise Institute fellow for foreign and defense policy studies, noted that those rules unexclusively define “beneficial ownership” as “each individual…who, directly or indirectly, owns 25 percent or more of the equity interests of a legal entity customer (i.e., the ownership prong); and a single individual with significant responsibility to control, manage, or direct a legal entity customer, including an executive officer or senior manager…or any other individual who regularly performs similar functions.”
   Among other things, the TITLE Act would require applicants seeking to form a corporation or limited liability company (LLC) under state laws to provide to the state during the incorporation process information identifying each beneficial owner by name; current residential or business street address; and a state ID card, non-expired drivers license, or a “unique identifying number from a non-expired passport issued by the United States.”
   The bill would also require corporations to continually update the governments of the states where they are incorporated about any changes to their lists of beneficial owners.
   The TITLE Act generally defines “beneficial owner” as “each natural person who, directly or indirectly – (i) exercises substantial control over a corporation or limited liability company through ownership interests, voting rights, agreement or otherwise; or (ii) has a substantial interest in or receives substantial economic benefits from the assets of a corporation or the assets of a limited liability company.”
   The bill also would allow the executive branch to “explain and clarify” that definition, but would prohibit any amendments or alterations to the definition, either directly or “through the manner of implementation.”
   One hearing witness, U.S. Chamber of Commerce Center for Capital Markets Competitiveness Senior Director Brian O’Shea, argued in written testimony that many anti-corruption legislative proposals, including the TITLE Act, use “overly broad and vague definitions,” and have “unworkable requirements and severe penalties” that would harm law-abiding small businesses more than illicit shell companies.
   The bill text states a congressional finding that a person forming a corporation or LLC within the U.S. typically provides less information to the state of incorporation than is “needed to obtain a bank account or driver’s license and typically does not name a single beneficial owner.”
   Yet O’Shea contended that the legislation would “compel” many business owners to perform ongoing “complex legal analyses to determine the identity of so-called ‘beneficial owners’” in their own company and other entities that “may have various types of interests in or derive certain benefits from their enterprise, including creditors, lien holders and others.”
   He also claimed the TITLE Act would “practically guarantee” that the vast majority of business owners’ names, addresses, and driver’s license information would be in the public domain “simply because they are currently operating, or at some future time form, a corporation or LLC.”
   Fuller’s written testimony noted that the TITLE Act and other legislation targeting money laundering naturally often targets small business, because larger companies are subject to other statutes, reporting requirements, or are publicly owned.
   “Money-laundering operations purposefully stay small in order to avoid detection,” he wrote. “It would seem to me that a [beneficial owner] registry would be squarely within the interests of small businesses precisely because it will push out competition from illicit actors.”
   Also testifying in support of the TITLE Act were Chip Poncy, president of consulting firm Financial Integrity Network, and Gary Kalman, executive director of the Financial Accountability and Corporate Transparency (FACT) Coalition, an international alliance that works to promote financial anti-corruption policies.

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