CEOs, Multinationals, and Small Businesses to Congress: End Anonymous Companies

By Clark Gascoigne

Business Support Continues to Grow for Corporate Ownership Transparency

A group of CEOs from major companies, a trade association of major multinational enterprises, and a small business trade group each called on Congress over the past week to end the abuse of anonymous shell companies, adding to the momentum to enact corporate ownership transparency legislation.

CEOs

A dozen current and former CEOs from major corporations (including Allianz, Chobani, Danone, Kering, and Unilever) sent a letter to Congress on Tuesday calling on lawmakers to end anonymous shell companies by enacting the bipartisan Corporate Transparency Act of 2019.

Excerpts from the letter read:

“Collecting beneficial ownership information will enhance anti-money laundering and anti-corruption efforts and provide for cleaner, more competitive markets. The significant benefits of disclosing this information far outweigh any incremental cost of providing this information. In its current form, the bill provides a much needed basic level of accountability regarding corporate ownership without creating a costly burden on business.

[…]

“Beneficial ownership information will provide greater assurance for companies when entering business relationships, offer a tool for mitigating risk throughout our supply chains and give management and our investors more certainty when addressing risk and allocating capital.

“It has been well-documented by the Organization for Economic Cooperation and Development (OECD), the World Bank, IMF and others that corruption impedes capital formation. The collection of beneficial ownership information in the United States would contribute to ending the anonymous companies that make it so hard to follow the money when it comes to corruption, fraud, and tax evasion. Indeed, this information is disruptive to existing illicit financial structures and arrangements. Clarity about the ultimate beneficial owners of companies reduces conditions of instability and uncertainty that impede stable, prosperous markets where we operate. It creates an environment where our businesses, business partners, employees and customers can thrive and succeed. This bill, with the requirement to name the true owner of a company at the point of formation, is a remarkably simple yet effective way to directly address these concerns.”

The full letter can be read here.

Multinational Enterprises

Richard Sawaya, the Vice President of the National Foreign Trade Council, an association of major multinational businesses engaged in international trade, published an op-ed in The Hill on Tuesday evening pushing Congress to enact beneficial ownership transparency legislation with overwhelming majorities.  The final three paragraphs of the op-ed, titled “A maximum pressure campaign against the Kremlin”, read:

“Regarding coercive tactics, Congress has another way forward. The Magnitsky Act, which was signed into law in 2012 as part of normalizing trade relations with Russia for WTO accession and made global in 2016. This law authorizes Treasury to sanction foreign government individuals for human rights abuses by seizing their assets in the U.S. and denying them use of the U.S. banking system and travel visas. Congress, however, has yet to address the elephant in this space: the formation of anonymous shell companies in the U.S.

“The multilateral Financial Action Task Force (FATF) has criticized the U.S. for failing to require appropriate transparency regarding beneficial ownership. Pursuant to the Bank Secrecy Act, Treasury’s Financial Crimes Enforcement Network (FinCEN) requires U.S. financial institutions to ascertain corporate ownership. But Congress has yet to legislate that ownership information be disclosed at the time of corporate formation or ownership transfer.

[…]

“Congress should enable Treasury to follow the money. In 2015, Treasury estimated that $300 billion a year is laundered in the U.S. Since most EU countries already require disclosure of beneficial ownership, veto-proof passage of beneficial ownership legislation, coupled with Global Magnitsky and close coordination with the EU and other allies, would yield real “maximum pressure” tailored to the deciders in the Kremlin.”

The full op-ed can be read here.

Small Businesses

Finally, Small Business Majority, a national small business advocacy organization representing 58,000 small business owners, sent a letter to the House Financial Services Committee on Thursday endorsing the Corporate Transparency Act of 2019.

The letter reads:

“As we have noted in the past, shell companies with hidden owners put small businesses at a disadvantage by unfairly competing for contracts, undermining our supply chains, creating difficulties in finding responsible subcontractors and providing cover for fraudsters. Patent trolls often hide behind anonymous front companies that disproportionately target small and medium sized businesses, and cost businesses upwards of $29 billion in 2011 alone, according to a study by Boston University Law School.

“These continuing problems are why we support legislation that includes collection of basic information on beneficial ownership. Scientific opinion polling conducted on behalf of Small Business Majority found small business owners nationwide overwhelmingly believe Congress should pass legislation requiring businesses to list their true identity when forming. Eighty-four percent of small business owners say the use of shell companies to win contracts or obtain government setasides reserved for small businesses is a problem. Nearly 6 in 10 (58%) believe this is a major problem.”

The full letter can be read here.

About the Corporate Transparency Act of 2019

While still in draft form, the bipartisan Corporate Transparency Act of 2019 was the subject of a hearing in the House Financial Services Committee on March 13, 2019.  The bipartisan measure would require companies formed in the U.S. to disclose their true owners (i.e. beneficial owners) at the time of formation.

It’s a critical measure to combat corruption, human rights abuses, opioid trafficking, money laundering, fraud, and tax evasion.

Clark Gascoigne is the deputy director of the FACT Coalition.