*Update: This bill has been re-introduced in the 112th Congress as S. 1483 and H.R. 3416*
The Incorporation Transparency and Law Enforcement Assistance Act (the “Act”) seeks to bring the United States incorporation practices for corporations and limited liability companies (LLCs) into conformity with the rest of the international community. The Act hopes to prevent criminals from concealing their identities when forming corporations or LLCs in the United States and using these entities to commit acts of terrorism or crimes such as drug trafficking, money laundering, tax evasion, and financial fraud.
Specifically, the Act amends the Homeland Security Act of 2002 to require States to adopt an incorporation system that requires each applicant to: (1) provide the name and addresses of the “beneficial owners” of the corporation or LLC; (2) identify any other legal entity used by the beneficial owners to control the corporation or LLC; and (3) update this information if any changes in beneficial ownership occur. Where any beneficial owner is a non-U.S. citizen or non-permanent resident, an agent of the company, who resides in the State, must file a written affidavit certifying that the contact information of the beneficial owners is accurate and that a copy of each owner’s government issued passport has been retained. States are then required disclose the beneficial ownership information upon subpoena or written request of any federal or state agency and to store said information for five years after the termination of the entity.
NACDL opposes the passage of S. 569 because of the steep criminal penalties it imposes on unknowing violators. The vague and overbroad language of the Act, particularly regarding the definition of a “beneficial owner,” makes it difficult for individuals to know exactly what the law requires. Combined with the fact that a criminal conviction under S. 569 requires only general rather than specific intent, the Act would essentially allow individuals who are merely guilty of a “paperwork” violation to be imprisoned for up to 3 years for their noncompliance. Imposing such a harsh punishment without any proof of wrongful intent is completely unwarranted and would lead to unjust prosecutions.
NACDL is also troubled by provisions of S. 569 that would impose government-mandated reporting obligations on members of the legal profession. We strongly oppose any provision that would erode the attorney-client privilege or that would create a conflict between a lawyer’s legal obligations and a lawyer’s ethical obligations to his or her client. On these issues, NACDL has adopted the ABA’s comments as set forth in their June 30, 2009 letter.
S. 569 was introduced to the Senate on March 11, 2009. In October of 2009, NACDL wrote a letter to Senators Lieberman and Collins outlining its concerns regarding the bill and urging the Senators to oppose its passage. A hearing on S. 569 was held on November 5, 2009, and it is currently pending before the Committee on Homeland Security and Governmental Affairs.
Resources on S. 569
Text of S. 569
NACDL Letter Opposing S. 569, Oct. 30, 2009