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Former White House Counsel Indicted for FARA Violations Relating to Ukraine and Manafort

April 12, 2019 by Bruce Zagaris 1 Comment

On April 11, 2019, a federal grand jury in the U.S. District Court for the District of Columbia returned an indictment charging Gregory B. Craig, a Washington-based lawyer, with making false statements and concealing material information about his activities on behalf of Ukraine from the Department of Justice, National Security Division’s Foreign Agents Registration Act Unit (FARA Unit).

Craig, 74, of Washington, D.C., was indicted for willfully falsifying and concealing material facts from the FARA Unit, in violation of Title 18, United States Code, Section 1001(a)(1), and for making false and misleading statements to the FARA Unit, in violation Title 22, United States Code, Section 618(a)(2).

The maximum penalties for the charged offenses are, respectively, five years’ imprisonment and a $250,000 fine, and five years’ imprisonment and a $10,000 fine.

The indictment details various emails allegedly sent by Craig prior to his firm’s engagement, in which Craig indicated he did not want to register as an agent for the Government of Ukraine, in part because he believed doing so could prevent him or others at the law firm from taking positions in the federal government in the future.

In addition, registration would have required Craig to disclose that a third party had paid his firm, Skadden Arps, Slate, Meagher & Flom LLP (hereafter Skadden) more than $4 million for preparing a report, and that Skadden had a parallel engagement with Ukraine to assist in the prosecution of Tymoshenko on additional charges. These disclosures, as well as the fact of registration itself, would have undermined the report and Craig’s perceived independence.

The indictment details various communications between Craig and his colleagues at Skadden. On January 17, 2019, Skadden entered into a settlement agreement with the U.S. Department of Justice, resolving its liability for violations of the Foreign Agents Registration Act (FARA).

The agreement evidences that Skadden acted as an agent of the Government of Ukraine within the meaning of FARA, 22 U.S.C. § 611 et seq., by participating in a public relations campaign directed at select members of the U.S. news media in 2012. In 2012 and 2013, in response to multiple inquiries from the Justice Department’s FARA Registration Unit about its role in that campaign, a partner then at Skadden made false and misleading statements to the FARA Unit. Thereafter, the FARA Unit concluded in 2013 that the firm did not have to register. In fact, Skadden was active in the public relations aspects of the report, but mislead the FARA Registration Unit in that regard. For instance, Gregory Craig, then the lead Skadden partner on the case, arranged for David E. Sanger of the New York Times to receive a copy of the report, then discussed the report with him. When more facts were known, Skadden was required to register in 2012. Skadden has agreed to register retroactively.

Skadden has agreed under the settlement to pay the U.S. Treasury more than $4.6 million, which it received in fees and expenses for its work with Ukraine, and to ensure that it has formal, robust procedures for responding to inquiries concerning its conduct from any federal government entity and ensuring FARA compliance as to its engagements on behalf of foreign clients.

The money that Craig and Skadden eventually received from a third party was arranged by Paul Manafort and came through a Cyprus bank account.

The settlement and Craig indictment may well cause other law firms and organizations with significant international practices to modify their client intake and training procedures.

The current issue of the IELR will report in more detail on the Craig indictment and its implications, including the announcement by the DOJ FARA Unit that they will no longer treat violations of FARA as routine administrative matters.

French Court Issues Largest Fine Ever against UBS for Tax and Money Laundering Crimes

February 22, 2019 by Bruce Zagaris Leave a Comment

On February 20, 2019, a French trial court issued the largest judgment against a bank for tax-related and money laundering crimes. The court found UBS AG and UBS (France) SA guilty of illicit solicitation and laundering of the proceeds of tax fraud. It imposed a penalty of € 3.7 billion and € 15 million respectively and civil damages of € 800 million.

UBS issued a press release that it “strongly disagrees with the verdict. “ It argues that the conviction is not supported by any concrete evidence. Instead, UBS says it is based on “the unfounded allegations of former employees who were not even heard at the trial.” UBS says the decision is devoid of evidence that any French client was solicited on French territory by a UBS AG client advisor to open an account in Switzerland. UBS criticized the decision as effectively applying French law in Switzerland, thereby undermining the sovereignty of Swiss law and posing significant questions of territoriality.

During the trial Hervé d’Halluin testified about a practice of poaching of clients and pressure by UBS Swiss bankers to provide tips about potential clients.

It appeared that the court relied significantly on the creation by UBS of a parallel accounting system known as milk books. Milk books are the small notebooks Swiss cow farmers use as ledgers. They were used to account for and simultaneously disguise transfers of illicit money between France and Switzerland. UBS has said the milk books were to determine whether a French or a Swiss bank should receive the credit for landing a French client. UBS’s French bankers obtained annual bonuses linked to new business from abroad.

French judges ruled the milk books were evidence UBS was attempting to hide financial transfers from its official books and to assist French clients avoid paying taxes.[1]

UBS in its press release states the verdict is devoid of evidence and a credible methodology for the calculation of the fine and damages. UBS states the charges of laundering the proceeds of tax fraud do not stand up, since the predicate the decision lacked proof of an original tax fraud offense of French taxpayers. UBS says it respected and met its obligations under Swiss and French law as well as the European Tax Savings directive, which became effective in 2004.

UBS will appear the verdict and evaluate whether the written decision requires any further steps. French law provides that an appeal suspends the judgment of the trial court and results in a transfer of the case to the Court of Appeals, which then retries the case in its entirety.

Initially French financial prosecutors and UBS representatives discussed a plea bargain, but UBS rejected the out-of-court settlement, reportedly € 1.1 billion.

The case illustrates the growing criminal prosecutions of so-called enablers, including banks, lawyers, asset managers, and fiduciaries, for tax and money laundering crimes. Already 5 UBS employees received suspended prison sentences and fines from €50,000 to €300,000 in 2018 in the case.[2] The verdict occurs as France is competing with other countries, especially Ireland and Germany, to attract banks leaving London as a result of Brexit. Other tax authorities and prosecutors have targeted so-called enablers of tax crimes. In the context of the implementation and enforcement of the Common Reporting Standard, the OECD and EU have taken initiatives targeting enablers.

The March issue of the IELR will have a more comprehensive article on this story and its implications.

[1] Liz Alderman, French Court Fines UBS $4.2 Billion for Helping Clients to Evade Taxes, N.Y. Times, Feb. 21, 2019, at B4, col. 1.

[2] Id.

U.S. Treasury Expands GTO to 12 Metropolitan Areas and Lowers Reporting Threshold to $300,000

November 20, 2018 by Bruce Zagaris Leave a Comment

On November 15, 2018, the U.S. Department of Treasury Financial Crimes Enforcement Network (FinCEN) announced the issuance of revised Geographic Targeting Orders (GTOs) that require U.S. title insurance companies to identify the natural persons behind shell companies used in all-cash purchases of residential real estate. The purchase amount threshold, which previously varied by city, is now set at $300,000 for each covered metropolitan area. FinCEN is also requiring that covered purchases using virtual currencies be reported.

Prior GTOs resulted in valuable data on the purchase of residential real estate by persons implicated, or allegedly involved, in various illicit enterprises including foreign corruption, organized crime,fraud, narcotics trafficking, and other violations. Reissuing the GTOs will further assist in tracking illicit funds and other criminal or illicit activity, as well as inform FinCEN’s future regulatory efforts in this sector.

The latest GTOs cover certain counties within the following major U.S. metropolitan areas: Boston; Chicago; Dallas-Fort Worth; Honolulu;Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle.

FinCEN also realized Frequently Asked Questions. The FAQs explain that one of the four criteria that triggers a Covered Transaction, is that “(s)uch purchase is made, at least in part,using currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, or a money order in any form, a funds transfer, or virtual currency.” Accordingly, payment of at least part of the purchase price using one of these methods, such as virtual currency, a wire transfer, a cashier’s check (sometimes referred to as a “bank check,” “official check,” or “treasurer’s check”), a personal check, a business check, or a certified check, triggers a Covered Transaction, assuming the other criteria to trigger a GTO are met: “residential real property”; foreign beneficial owner,which means each individual who,directly or indirectly, owns 25% or more of the equity interests of the Purchaser; and a Covered Business’s “agents” refers to people or entities that are authorized by the Covered Business, usually through a contractual relationship, to act on its behalf to provide title insurance underwritten by the Covered Business (or its subsidiaries).

The U.K. already has initiated a New Beneficial Ownership Register for UK Properties owned by Overseas Companies and other Legal Entities that will go live in 2021. The British Columbia government has released regulations to create a new condo and strata assignment register, in part in response to the significant number of foreign purchases of residences, some of which appear to be connected to proceeds of crime. With the international developments and the continuing extension of the GTOs by FinCEN, pressure is building for the GTOs to become permanent.

OECD and Argentina Establish Latin America Academy for Tax and Financial Crime Investigation

August 7, 2018 by Bruce Zagaris Leave a Comment

On July 22, 2018, OECD Secretary-General Angel Gurria and Argentina’s Minister of Treasury Nicolás Dujovne presided over a Memorandum of Understanding (MOU) to establish a center of the OECD Academy for Tax and Financial Crime Investigation in Buenos Aires, Argentina.

The signing occurred in the margins of the meeting of the G20 Finance Ministers and Central Bank Governments. The center will be housed in the facilities of Argentina’s Federal Administration of Public Revenues. Argentina’s Commissioner of Public Revenues Leandro Cuccioli and the OECD’s Director of the Centre for Tax Policy and Administration Pascal Saint-Amans signed the MOU.

The Academy will provide intensive capacity-building courses targeting tax crime investigators and other related law enforcement officials, including prosecutors, anti-money laundering and anti-corruption officials, especially from Latin America countries. The courses will aim to support tax crime investigators. It will feature broad-based courses on conducting and managing financial investigations as well as giving courses on specific types of tax and financial crimes, such as those associated with crypto-currencies, money laundering and VAT fraud.

The creation of the OECD Latin America Academy builds on the success of the original centre hosted by the Guardia de Finanza in Ostia, Italy, and a pilot Africa Academy for Tax and Financial Crime Investigation started by the OECD, Kenya, Italy and Germany at the G20 Africa Partnership conference in June 2017. Together, the centers have trained more than 550 financial investigators from over 80 countries.

The first program of the OECD Latin America Academy will occur in late 2018 and will focus on VAT/GST Fraud.

The 2019 Academy schedule for Latin America will include a program, concentrating on Conducting and Managing Financial Investigations. The program will include subject areas such as: bribery and corruption; beneficial ownership and offshore structures; money laundering; investigative techniques; international cooperation; and asset recovery.

With globalization the ways for individuals and entities to evade and avoid tax have expanded significantly. Just as importantly, the international mechanisms to prevent and combat tax evasion and avoidance, such as BEPS and its components, such as Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, Country-by-Country reporting, the different types of exchange of information, the interplay between anti-money laundering, transnational corruption, and tax issues all require initial and ongoing training. The OECD Academies will help train tax officials at different levels. The nature of the training illustrates the increasing convergence between international tax enforcement and other international white collar enforcement. For more discussion of this development, stay tuned for the August issue of the International Enforcement Law Reporter.

U.S. Issues Sanctions Risks for Businesses with N. Korean Supply Chain Links

July 24, 2018 by Bruce Zagaris Leave a Comment

On July 23, 2018, the U.S. Department of State, with the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the U.S. Department of Homeland Security’s (DHS) Customs and Border Protection (CBP) and immigration and Customs Enforcement (ICE), issued an advisory to high sanctions evasions tactics used by North Korea that could expose businesses – including manufacturers, buyers, and service providers – to sanctions compliance risks under U.S. and/or U.N. sanctions authorities. The advisory also helps businesses in complying with the requirements under Title III, the Korean Interdiction and Modernization of Sanctions Act of the Countering America’s Adversaries through Sanctions Act (CAATSA). The advisory warns businesses to be aware of deceptive practices employed by North Korea in order to implement effective due diligence policies, procedures, and internal controls to ensure compliance with applicable legal requirements across their entire supply chains.

Multiple U.S. and U.N. sanctions impose restrictions on trade with North Korea and the use of North Korean labor. Annex 1 to the advisory sets forth a more detailed description of the North Korean sanctions prohibitions related to supply chains. The two primary risks are: (1) inadvertent sourcing of goods, services, or technology from North Korea; and (2) the presence of North Korean citizens or nationals in companies’ supply chains, whose labor generates revenue for the North Korean government. The advisory also provides due diligence references for businesses.

The heightened risk for and potential indicators of goods, services, and technology with a North Korean nexus includes:

Sub-contracting/consignment firms [e.g., third country suppliers (Chinese) shift manufacturing or sub-contracting work to a North Korean factory without informing the customer or relevant parties);

Mislabeled Good/Services/Technology: N. Korean exporters disguise the origin of goods produced in N. Korea by affixing country-of-origin labels that identify a third country.

Joint Ventures: North Korean firms have established hundreds of joint ventures with partners from China and other countries in various industries, such as apparel, construction, small electronics, hospitality, minerals, precious metals, seafood and textiles (see Annex 2 of the advisory for a list of known North Kean joint ventures).

Raw Materials or goods provided with Artificially Low Prices: North Korean exporters sell goods and raw materials well below market prices to intermediaries and other traders.

Information Technology (IT) Services: North Korea sells a range of IT services and products abroad, including website and app development, security software, and biometric identification software that have military and law enforcement applications.

The advisory also discusses heightened risk for North Korean overseas labor producing revenue for the government of North Korea. The North Korean government exports large numbers of laborers to meet a single contract in various industries, including but not limited to apparel, construction, footwear manufacturing, hospitality, IT services, logging, medical, pharmaceuticals, restaurant, seafood processing, textiles, and shipbuilding. China and Russia continue to host more North Korean laborers than all other countries and jurisdictions combined. The advisory lists 42 jurisdictions hosting North Korean laborers.

The advisory sets forth potential indicators of North Korean overseas labor.

The advisory gives due diligence best practices, namely those businesses closely examine their entire supply chain(s) for North Korean laborers and goods, services or technology, and adopt appropriate due diligence best practices. This especially applies to those businesses with operations in high-risk countries, or who operate in high-risk industries. Well-documented due diligence policies and practices may be considered mitigating factors when the U.S. government determines the appropriate enforcement response.

The advisory reminds businesses of the penalties on individuals and entities for violations of sanctions and enforcement actions and activities that could result in designation by OFAC. The advisory also provides where interested individuals can find additional information on OFAC sanctions.

During the second week of July the U.S. complained to the Security Council North Korea sanctions committee that as of May 30, North Korea had made 89 illicit ship-to-ship transfers of refined petroleum products. The U.S. asked the committee to notify all U.N. member states of the violations of a refined petroleum cap of 500,000 barrels a year – imposed by the council in December – and order an immediate halt to all transfers. On July 19, 2018, China and Russia delayed a U.S. effort for a U.N. Security Council committee to order a ban on refined petroleum exports to North Korea. China and Russia requested more detail on a U.S. accusation that Pyongyang breached sanctions.

In the coming weeks the U.S. will try to both unilaterally and multilaterally strengthen North Korean sanctions unless and until North Korea starts implementing the June 12 “denuclearization agreement” or joint statements to the satisfaction of the U.S. government.

The next issue of the IELR will have additional information on the North Korean sanctions.

Five Countries Form Joint Chiefs of Global Tax Enforcement (J5) Alliance

July 2, 2018 by Bruce Zagaris 2 Comments

On July 2, 2018, Her Majesty’s Revenue and Customs announced an alliance on tax enforcement between the United Kingdom, Canada, the Netherlands, the United States and Australia to combat international tax crime and money laundering. Members include the heads of tax crime and senior officials from the Australian Criminal Intelligence Commission (ACAC) and the Australian Taxation Office (ATO), the Canada Revenue Agency (CRA), the Dutch Fiscal Information and Investigation Service (FIOD), Her Majesty’s Revenue & Customs (HMRC), and Internal Revenue Service Criminal Investigation (IRS-CI).

The group will build on existing international cooperation by sharing intelligence and expertise, and will cooperate on joint operations to investigate persons who are enablers of tax crime.

At their first meeting, the J5 brought leading experts in tax and other financial crimes from each of the five member countries to develop tactical plans and identify opportunities to pursue cyber criminals and enablers of international tax crime.

According to HMRC, the new alliance will help to build on work that has obtained more than £ 2.8 billion from offshore tax evaders since 2010.

The J5 was formed in response to a call to action from the OECD for countries to do more to tackle the enablers of tax crime. All five countries have similar threats: organized crime groups and wealthy offshore tax evaders who are well resourced and have access to professional enablers to hide income and assets using the global financial system.

According to IRS Criminal Investigation division chief Don Fort, the J5 will have three areas of focus: professional enablers, cybercrimes and cryptocurrencies, and increased use of data analytics and new investigation technology. (Nathan J. Richman, Enforcement Collaboration to Focus on Emerging Tax Issues, 2018 Worldwide Tax Daily 126-1, June 29, 2018).

The J5 has similarities to the Joint International Tax Shelter Information and Collaboration (JITSIC). On October 24, 2014, 38 countries, meeting in Dublin, Ireland for the 9th meeting of the Forum on Tax Administration (FTA), agreed to establish the JITSIC. The JITSIC Network focuses specifically on cross border tax avoidance. JITSIC has the goal to deter the promotion of, and investment in, abusive tax schemes by: increasing the community’s awareness of the potential risks of promoting and investing in tax schemes; sharing ideas on how to identify and address abusive tax schemes; enhancing compliance and enforcement efforts through coordinated ‘real-time’ exchanges of information; developing new internet searches and other techniques for the early identification of promoters and investors involved in abusive tax schemes; and identifying emerging trends and patterns to anticipate new abusive tax schemes, and improving knowledge of techniques used to promote cross-border abusive tax schemes.

The J5, unlike JITSIC, will actually engage in joint tax investigations and use increased data analytics and investigation technology in its work.

There will be a more comprehensive article in the July 2018 issue of the International Enforcement Law Reporter.

Transparency Int’l Critiques G20’s Unmet Promises on Ending Anonymous Companies

May 1, 2018 by Bruce Zagaris Leave a Comment

by Bruce Zagaris

On April 19, 2018, Transparency International issued a report G20 Leaders or Laggards? Review G20 promises on ending anonymous companies.

The TI report discusses how the major cross-border “grand corruption” scandals have tarnished the Group of 20 (G20) countries in recent years. It cites the fact that in 2017 Odebrecht the Brazilian engineering company, was assessed a US$2.6 billion fine for bribery after being charged with paying US$788 million in bribes. In the “Russian Laundromat” scandal, exposed in 2017, a group of individuals in G20 member Russia allegedly established 21 shell companies, which then moved and laundered illegal proceeds out of the country, making more than 26,000 payments to 96 different countries including every G20 country aside from Brazil. Increasingly, anonymous companies hide the identity of the person at the source of the funds either to launder and transfer stolen money, or to operationalize corrupt deals, using companies and offshore accounts to pay bribes or buy influence.

The report makes 5 major findings and then recommendations as follows:

G20 Countries are starting to tackle anonymous company ownership – but progress is slow. Some 3 years after the G20 adopted their High-Level Beneficial Ownership Principles at the Brisbane G20 Summit, the number of countries with weak or average frameworks has dropped from 15 to 11, but still major weaknesses exist across the principles.
The majority of countries still do not know who owns and controls companies in their territories and do not keep current information on them. The 20 Principles encouraged legal entities to require beneficial ownership information when recording information about their shareholders. Legal entities are now expected to understand their ownership and control structure and monitor individuals who have an interest in a company but are presented through nominee shareholders or other legal entities. However, the great majority of countries evaluated still do not require legal entities to maintain beneficial ownership information themselves. Central beneficial ownership registers improve collection of beneficial ownership information and access to law enforcement, supports domestic and international cooperation between authorities and permits them to do their job more quickly. Six assessed countries now have central beneficial ownership registers.
Verification of information is weak across the board. This undermines the ability of competent authorities to investigate suspicious cases, and the ability of banks and businesses to carry out proper due diligence. All 23 countries analyzed now require financial institutions to identify the beneficial ownership of customers. Unfortunately, in high-risk cases, only 8 G20 countries required financial institutions to use independent and reliable sources to verify the beneficial owner of their customers. Finally, no register authority in any G20 or guest country verifies information collection in company registers.
Rhetoric does not always translate into action. Government are frequently aware of the weaknesses in their system. However, in many cases they fail to implement key measures they know will help mitigate those problems.
Gatekeepers such as lawyers, accountants, real estate agents, and trusts and company service providers remain money laundering weak spots.

TI makes the following recommendations:

— Governments should establish a central register of beneficial ownership information and make it publicly available in open data format.

— Governments should resource and establish mechanisms to ensure that at least some verification of beneficial ownership information occurs, such as cross-checking the data against other government and tax databases, or conducting random inspections.

— Financial institutions or DNFBPs should not be permitted to proceed with transactions if the beneficial owner of their customer cannot be identified.

— Governments should undertake national money laundering risk assessments on a regular basis. These should include an analysis of the risks posed by domestic and foreign legal entities and arrangements. Key stakeholders, including obliged entities and civil society organizations should be consulted. The results of the assessment should be published online.

— Governments should consider prohibiting nominee shareholders. If they are permitted, they should be required to disclose their status upon the registration of the company and registered as nominees. Nominees should be licensed and subject to strict anti-money laundering obligations.

— Governments should require the registration of both domestic and foreign trusts operating in their country. Information on all parties to the trust (trustee, settlor and beneficiaries), and the real individuals behind them should be recorded.

The report illustrates how civil society plays an important role in shaping and implementing commitments by governments and international organizations to transparency and anti-corruption. They invest significant resources before the G20 meetings to develop precise commitments and then lobby the governments to support them. Thereafter, civil society continues to monitor the performance of the governments against the commitments and produce reports, exposing gaps. They also work with other organizations, such as the International Consortium for Investigative Journalists (ICIJ). The current issue of the IELR will have a more comprehensive discussion of the TI report.

U.S. Senate Holds Hearing on Beneficial Ownership: Fighting Illicit International Financial Networks Through Transparency

February 6, 2018 by Bruce Zagaris Leave a Comment

On February 6, 2018, the Senate Judiciary Committee held a hearing on “Beneficial Ownership: Fighting Illicit International Financial Networks Through Transparency.” The hearing and testimony are available on the Committee’s website. The hearing was the latest in a series of Congressional hearings on the issue of anonymous corporations.

Sen Chuck Grassley (R-Iowa and Chair of the Committee), opened the hearing by expressing his disappointment that no Treasury witness has appeared despite the Committee’s invitation. He underscored that beneficial ownership is a huge problem, as confirmed by the Panama Papers and the Treasury’s 2015 Money Laundering Assessment report. On November 2017, Congress held a hearing on S.1241, the Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017, concerning cross border money laundering.. Bad actors from all over the world have come to the U.S. as their financial safe haven Victor Bout, convicted of arms trafficking, used six shell companies in the U.S. to launder his money.

Kleptocracy is a threat to U.S. national security and that U.S. secrecy contributes to this. The asset forfeiture case, such as the one against Mr. Teodoro Obiang, the son of the President of Equatorial Guinea, illustrates the problem. Obiang agreed to relinquish $30 million in assets in settlement of the suit brought by DOJ.

The problem plays out in the purchase of U.S. real estate, where shell companies are used. Lawyers for kleptocrats are complicit as the Global Witness undercover sting, which was shown on Sixty Minutes, illustrates. Even the former President of the ABA participated.

Sheldon Whitehouse (D-Rhode Island and ranking minority member on the Committee, said the Panama and Paradise Papers show the wide use by criminals of money laundering. The U.S. is a facilitator and target. Fraudsters, kleptocrats, and tax cheats all use shell companies, which are used to own real estate and other assets secretly. It affects and warps the U.S. housing markets. The answer to shell companies is to require private U.S. companies to report and update beneficial ownership information of U.S. entities.

Testifying in support of S. 1454, the True Incorporation Transparency for Law Enforcement (TITLE) Act, the proposed legislation was Panel I – Mr. Kendall Day, Acting Assistant Attorney General and head of the Anti-Money Laundering and Asset Forfeiture Unit, Criminal Division, U.S. Department of Justice, Washington , D.C.

Testifying in support of S. 1454 on Panel 2 were Mr. Gary Kalman, FACT Coalition, Washington , DC; and Mr. Chip Poncy, Financial Integrity Network, Washington, D.C. Poncy provided a ten-point plan to responding to the problem of anonymous companies. He called for a centralized data base with access to U.S. and other law enforcement agencies.

Mr. Brian O’Shea, Senior Director, Center For Capital Markets Competitiveness, U.S. Chamber of Commerce, Washington, DC, testified that S. 1454 does not properly balance privacy and law enforcement requirements. It would subject small and medium businesses to excessive bureaucracy and unnecessary expense.

As Congress continues to hold hearings on entity transparency, two of the main bills are S.1454 and the Corporate Transparency Act (H.R.3089/S.1717). They both have similar definitions of beneficial ownership. Similarly, they both make the information easily available to law enforcement and financial institutions. Both bills make $40 million available to states for transitional costs from the Treasury and Justice Departments’ asset forfeiture funds.

Both bills exempt publicly-traded companies. Similarly, each bill also exempts companies that have a physical presence in the U.S., more than $5 million in annual revenues, and at least 20 employees in the U.S., so that it narrowly targets those shell entities most likely to be abused by money launderers. In the Q & A period, the rationale for the thresholds was discussed.

In the next issue of the IELR, the differences of the bill and the high points of the debate in the hearing will be discussed.