Back to General Resources

Senate Banking Committee Hearing on Beneficial Ownership

Senate Banking Committee

“Outside Perspectives on the Collection of Beneficial Ownership Information”

Thursday, June 20, 2019

 

Key Topics & Takeaways

  • Data Collection and Protections: Baer said that FinCEN is the most experienced and equipped agency to collect and safeguard the collected beneficial ownership data, and cautioned against housing any beneficial ownership data with banks or the IRS. Baer said names, addresses, dates of birth and a form of identification for the beneficial owners of a business would be collected. Baer added that FinCEN would limit access to the collected data to only specific, qualified individuals. Kalman reiterated these points and added that any “fishing expedition” for personal information in FinCEN’s database would be a very serious and punishable crime.
  • Legislative Proposals: Kalman provided several examples where beneficial ownership information collection and centralization would help law enforcement combat crime in real estate, foreign terrorism funding, human trafficking, and foreign election interference. Kalman said the Illicit Cash Act would strike the appropriate balance between the ease of doing business and providing law enforcement critical information. Baer said the Illicit Cash Act is a very well thought out approach to mitigate any potential regulatory cost and burden to businesses and provides law enforcement the necessary national security permissions.

 

Witnesses

  • Greg Baer, CEO, Bank Policy Institute
  • Karen Harned, Executive Director, Small Business Legal Center
  • Gary Kalman, Executive Director, Financial Accountability and Corporate Transparency Coalition (FACT)

Opening Statements

Chairman Mike Crapo (R-Idaho)

In his opening statement, Crapo focused on the need for beneficial ownership information for U.S. law enforcement to combat illicit financial crimes. He said witnesses in past hearings, such as the director of the Financial Crimes Enforcement Network (FinCEN), have expressed the need for a centralized repository to protect the financial system, national security, and Americans from harm. Crapo said various legislative proposals, specifically H.R.2513 the Corporate Transparency Act, passed by the House, and the Illicit Cash Act, address requirements for collecting beneficial ownership information at the conception of a company, storing and updating such information, and limiting access to only law enforcement and qualifying state partners. Crapo said these proposals take into account the impact on banks and businesses, including the liabilities they undertake, and address national security concerns. He said now is a critically important time to examine necessary reforms to anti-money laundering (AML) and the Bank Secrecy Act (BSA), in order for businesses to work effectively with government to combat crime and terrorism.

Ranking Member Sherrod Brown (D-Ohio)

In his opening statement, Brown expressed the need for AML and BSA reform to combat the abuses of shell companies. He said the U.S. has lagged in this jurisdiction, which has left law enforcement to spend time chasing down information about company ownership. Brown said that approximately $300 million has been laundered through the U.S. financial system through various criminal activities such as narcotic funds, Medicare and Medicaid fraud, and the sale of counterfeit goods, none of which are victimless crimes. He said the legislative proposals being considered protect the financial system and provide law enforcement critical information, adding that the H.R.2513 the Corporate Transparency Act is an important bill for this reform. Brown said according to the Department of Treasury, the customer due diligence (CDD) rule already requires banks to provide some of the information needed for beneficial ownership collection. Brown said it is important to implement these reforms, otherwise criminals and foreign nations will continue to undermine the financial system. He said the reforms can be simple, efficient, and effective without causing harm to small businesses, and must keep pace with changing criminal tactics.

Testimony

Greg Baer, CEO, Bank Policy Institute

In his testimony, Baer stated his “strong” support for ending the use of anonymous shell companies, which are used for a wide range of financial crimes. Baer said legislation would help Congress look beyond the corporate veil to help make the country safer and enhance the reputation of the U.S. on combatting financial crime. He said currently the banks assist law enforcement to determine the ownership of companies through monitoring activity, but only for those companies that open a bank account. Baer said legislation would help with disclosure requirements, centralize the identification process for ownership, and address concerns about burden and privacy. He said only the most basic information would be required, such as name, address, date of birth, and a form of identification, much of which is already required, and information available to agencies like the Internal Revenue Service (IRS). Baer said FinCEN and law enforcement are concerned about anonymous shell companies, not legitimate, law-abiding companies, and the requirements under these proposals would not be burdensome to small businesses.

Karen Harned, Executive Director, Small Business Legal Center

In her testimony, Harned said she opposes both proposals being considered, as 80 percent of small business members surveyed at the National Federation of Independent Business (NFIB) oppose beneficial ownership requirements. She said according to a 2016 report produced by NFIB, small businesses stated that unreasonable government regulations, which lead to increased compliance costs, are key burdens to doing business. Harned said the volume of regulation poses a problem for 55 percent of small businesses, who are the least equipped to handle these burdensome requirements. She claimed that it is unrealistic to assume small businesses will hand over their personal information to an agency like FinCEN considering they would not know anything about the agency. Harned said failure to properly report ownership information would lead to costly civil and criminal penalties for these businesses.

Gary Kalman, Executive Director, FACT

In his testimony, Kalman said there is overwhelming data showing that anonymous shell companies are abused by rogue countries like Iran and sanctioned groups like Hezbollah. He said illicit funds can be used to help terrorist organizations purchase weapons, and this is a national security concern. He said there are numerous examples of shell companies disrupting markets and running illegitimate businesses through supply chains, fraudulent competition for contracts, and illicit commerce. Kalman said small businesses are more concerned about losing out on contracts to anonymous companies than burdensome regulations. Kalman added that FinCEN would be responsible for housing and protecting information and would be restricting access to and use of the information to only qualified individuals. He said under the proposals, negligence would not be a punishable offense for businesses and there are protections included in the proposals for those who make errors when they file.

Question & Answer

Data Collection and Protections

Sens. Krysten Sinema (D-Ariz.), Crapo and Brown asked who should store and protect the data and what information would be collected. Baer said that FinCEN is the most experienced and equipped agency to collect and safeguard the collected data. He cautioned against housing any beneficial ownership data with banks or the IRS. Baer said names, addresses, dates of birth and a form of identification for the beneficial owners of a business would be collected. Baer added that FinCEN would limit access to the collected data to only specific, qualified individuals. Kalman reiterated these points and added that any “fishing expedition” for personal information in FinCEN’s database would be a very serious and punishable crime.

Legislative Proposals

Sens. Jack Reed (D-R.I.), Mark Warner (D-Va.), Tom Cotton (R-Ark.), Catherine Cortez Masto (D-Nev.) and Brown asked about how the legislative proposals are beneficial and to identify areas for improvement. Kalman provided several examples where beneficial ownership information collection and centralization would help law enforcement combat crime in real estate, foreign terrorism funding, human trafficking, and foreign election interference. Kalman said the Illicit Cash Act would strike the appropriate balance between the ease of doing business and providing law enforcement critical information. Baer said the Illicit Cash Act is a very well thought out approach to mitigate any potential regulatory cost and burden to businesses and provides law enforcement the necessary national security permissions.

Sen. Thom Tillis (R-N.C.) asked if there is a solution, like TSA precheck, to fast track the process for legitimate, law-abiding businesses, in order to utilize resources against criminals. Baer said to simplify the requirements, type of information collected, and structure should be the focus of Congress. Harned said she is concerned that small businesses will be burdened and left exposed to criminal and civil penalties in the process. Kalman said improvements to the process should continue to better align business reporting requirements with government interaction requirements.

Small Business

Sens. Doug Jones (D-Ala.), Warner, Crapo and Brown asked for recommendations to improve the proposals in order to mitigate concerns for small businesses. Baer said there are no penalties for small businesses if they are not willfully and knowingly providing false information. He added that small businesses with bank accounts already report most of the required information to banks, and privacy should not be a concern. Harned said she would be willing to work with members on language about willful and knowing standards in order to prevent small businesses from being penalized. She said their concern is the burden of more paperwork and regulatory requirements. Kalman said the Illicit Cash Act has several provisions that update reporting requirements for businesses, such as changing reporting requirements to align with the 90-day government interaction requirements.

International Systems

Sens. Crapo and Brown asked how the U.S. system can align with international systems. Kalman said currently, law enforcement cannot work with partners overseas because there is no central information to utilize. He said a directory of the information will assist the ability of the U.S. to work with other countries.

For more information on this hearing, please click here.