The United States company formation sector dwarfs that in the offshore financial services industry. Some 1.3 million entities are incorporated in Delaware alone – more than in all the offshore jurisdictions combined.
One of the reasons for this is that American company information is tracked and stored at the state level, and some states, like Delaware, do little to verify the owners of the entities registered there.
The lack of corporate transparency in the US has led organisations such as the Tax Justice Network to label the country as one of the most secretive jurisdictions in the world, and publications like the Guardian to declare in bold headlines: ‘Forget Panama: it’s easier to hide your money in the US than almost anywhere’.
The relative lack of transparency in the US has also given the Cayman Islands and other offshore jurisdictions a built-in reason to oppose efforts by the United Kingdom and European Union to force them to establish public beneficial ownership registers. Political leaders in offshore financial jurisdictions have long maintained that they will not establish public beneficial ownership registers until the rest of the world’s major financial centres do the same.
“When this becomes a global standard, Cayman is there,” Cayman Premier Alden McLaughlin said in May 2018, when he announced that his government will legally challenge any attempts by the UK to mandate public registries for the British Overseas Territories. Similar statements have been made by premiers in the British Virgin Islands and Bermuda.
But little by little, public beneficial ownership registers may indeed be approaching the ‘global standard’ long demanded by the offshore centres.
In 2015, all 28 European Union member states committed to establishing beneficial ownership directories, and a year later the United Kingdom launched its public register. Most recently in June, the British Crown Dependencies of Jersey, Guernsey and the Isle of Man announced that they, too, will set up their own beneficial ownership registers that will eventually be open to the public.
The issue may even be picking up traction in the US, where the bipartisan US Senate Committee on Banking, Housing and Urban Affairs has recently circulated legislation that would establish a central beneficial ownership register – though not a public one.
The Illicit Cash Act and the Corporate Transparency Act would centralise the data on the millions of US-registered companies on a US Treasury Financial Crimes Enforcement Network (FinCEN) database. Information on that central repository would include names, dates of birth, addresses, passport information, and identification numbers for anyone who owns 25% or more of a US-registered company.
The register in the proposed legislation would only be accessible to designated law enforcement officers, but there have also been discussions about making the information public.
In May and June, the committee held a pair of hearings to discuss the proposed legislation.
The bills received near unanimous support from witnesses as well as lawmakers – with Democrats supporting a push for more corporate transparency, and Republicans looking to provide law enforcement with more tools to combat terrorist financing and other illicit acts.
The May committee meeting had top US law enforcement officials from FinCEN, the FBI, and the Office of the Comptroller of the Currency to testify about the importance of a central beneficial ownership register.
“The burden of uncovering true beneficial owners can often handicap or delay investigations, frequently requiring duplicative, slow-moving legal process in several jurisdictions to gain the necessary information,” said Steven D’Antiuono, the deputy assistant director of the FBI’s criminal investigative division. “The ability to easily identify the beneficial owners of these shell companies would allow the FBI and other law enforcement agencies to quickly and efficiently mitigate the threats posed by the illicit movement of the succeeding funds.”
FinCEN director Kenneth Blanco brought up numerous examples of US shell companies being used to facilitate financial crimes, including a corrupt Venezuelan treasurer who funnelled bribes through US companies, and an Iranian bank that used a US company to own and operate a skyscraper in New York.
“Had beneficial ownership information been available, and more quickly accessible to law enforcement and others, it would have been harder and more costly for the criminals to hide what they were doing,” Blanco told committee members. “Law enforcement could have been more effective and efficient in preventing these crimes from occurring in the first place, or could have intercepted them sooner and prevented the scope of harm these criminals caused from spreading.”
D’Antuono also spoke about the “immense value” of beneficial ownership information shared by United Kingdom Overseas Territories and Crown Dependencies, including the Cayman Islands.
“UK law enforcement has access to company beneficial ownership information in support of investigations. This information must be made available within 24 hours of a request. Our colleagues at the UK’s National Crime Agency have continually noted the immense value of such information in their investigations,” D’Antuono said at the hearing, referencing the beneficial ownership platforms recently established by Cayman and other British territories.
About a month after the May hearing, the Senate committee held another meeting to garner perspectives from private sector representatives. Most of them made statements similar to law enforcers about the need for a central beneficial ownership register in the US.
Greg Baer, the CEO of the Washington DC-based Bank Policy Institute, told legislators that the US banking industry is already doing its part to combat money laundering and terrorist financing. US banks, he explained, are required by the Treasury Department to verify the beneficial ownership information of their clients.
However, those Treasury Department rules do not apply to US companies that do not have bank accounts.
“This legislation can provide law enforcement a first look at true shell companies that never open a bank account because they conduct no business – employ no people, earn no money, pay no taxes – but rather just hold assets,” Baer said at the June hearing.
Some legislators expressed privacy concerns at the June hearing, and questions were raised about whether the register would be public.
In response, Gary Kalman, the executive director of the Financial Accountability and Corporate Transparency Coalition – an organisation that has pushed for a central beneficial ownership register – said there will be strict safeguards as to who can access the central database.
“The database is accessed through a physical portal, meaning that a local police officer could not log on during a routine traffic stop. Users must be trained and certified and must undergo a background check,” Kalman said, adding, “All searches must be done as part of an ongoing investigation, and every file that is reviewed is logged so that there is a record of who accessed what information.”
Of all the witnesses at both hearings, Small Business Legal Center director Karen Harned was the only one to oppose the committee’s beneficial ownership register proposal – mostly on the grounds that the extra regulations required by the proposed initiative would add more red tape and harm small businesses.
“One new paperwork requirement may not sound that burdensome to someone who does not run a small business, but it is quite a different story for the individual just starting a business or the small business owner who is adding this new form to the stack of forms he must already fill out and file,” Harned told committee members.
The bills that would establish a central beneficial ownership registry – the Illlicit Cash Act and the Corporate Transparency Act of 2019 – are still in the senate committee.