Friday, June 19, 2009

Stop the reverse finger pointing!

From Sarah Lewis in Washington:

Today a Senate Hearing was held on legislation recently re-introduced in March 2009 by Senators Levin, Grassley and McGaskill.

The Incorporation Transparency and Law Enforcement Bill was originally introduced during the previous Administration, at the time co-sponsored by the then Senator Barack Obama.

The bill provides for legislation at federal level requiring beneficial ownership information for company formation. Cayman, Bahamas, BVI and others generally labeled "secrecy jurisdictions" claim hypocrisy on the part of the United States and engage in reverse finger-pointing, citing USA states such as Delaware, Wyoming and Nevada as failing to meet international standards to combat tax evasion, money laundering and terrorist financing.

Delaware and other USA 'shell' companies are often misused within schemes for illicit financial transactions. Tax Justice Network USA, together with a group of allied organizations, provided a letter of support for the legislation. Our letter is included on the record of the Hearing (copied below).

Debate during the Hearing was lively. Countering arguments from the proponents of secrecy included:

Pro-secrecy: Too burdensome on state administrations.

TJN-USA: If you need to provide your name, address and photo ID to open a bank account, and you even need to show a photo ID to buy a bottle of wine at the supermarket, why should this be such a big deal in order to form a company?

Pro-secrecy: False information will be filed.

TJN-USA: We support the testimony of the Law Enforcement officials: If false or misleading information is provided then this in itself is a powerful law enforcement tool for prosecution, in demonstrating criminal intent.

Counter arguments came from witnesses representing the National Conference of Commissioners on Uniform State Laws (NCCUSL) and National Association of Secretaries of State (NASS).

NCCUSL have developed an alternative legislative proposal at the request of NASS, but their proposal fails to cure the problem and creates a host of new ones. Most significantly, the NCCUSL proposal would not require those seeking to form a U.S. corporation to provide the names of the beneficial owners to the State. Instead, the proposal requires law enforcement to ask the State for contact details for a so-called "records contact" and then ask that individual for information on the beneficial ownership and control of a corporation. The actual effect of this would be "tipping off".

As Senator Levin said while cheerfully acknowledging the mixing of his metaphors, it is like a "3-step wild goose chase after the horse is out of the barn".

Clearly, there is no other way than requiring US companies to disclose beneficial ownership.

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