Congress has voted to ban anonymous shell companies, a legal concept that has long helped sketchy groups worldwide and at the same time made lots of money for Delaware.
“Delaware’s second-biggest biggest source of revenue was fees from few-questions-asked company registrations and other corporate services,” Reuters wrote in a a 2016 article that called Delaware Secretary of State Jeffrey Bullock “a leader in defending the status quo.”
“This agreement for the collection of ownership information for every US company has been a long time coming,” Bullock said Thursday in a statement.
“This debate has gone on for over a decade, but the bipartisan agreement contained in the [National Defense Authorization Act] bill is a huge step forward in our nation’s efforts to combat terrorism and money laundering. It’s also the common-sense approach I have supported for many years, so I am grateful to see it so close to becoming law.”
Bullock was also asked several other questions that he did not respond to: What impact does he foresee for Delaware for this act? Might it reduce the number of incorporations and hence revenue? Might it increase the cost of incorporations?
The Corporate Transparency Act was included in the must-pass defense bill. Donald Trump has repeatedly threatened to veto it, but it has passed Congress by veto-proof margins, The Washington Post said.
“Nearly 1.5 million legal entities incorporated in Delaware as of 2019,” according to the Delaware Division of Corporations annual report. The division’s fiscal 2019 revenue was almost $1.4 billion.
The bill calls for some transparency. ID numbers (like driver’s licenses and passport numbers) of registrants will be sent to the US Treasury and shared as requested with local law-enforcement agencies and banks.
It also allows for some opacity. The general public won’t have access to the info.
In a 2019 letter to Congress, Bullock praised the balance in the law. “I believe the Corporate Transparency Act is appropriately tailored to minimize potential undue burdens on small business. The legislation aims to limit the impact of unintentional noncompliance by imposing penalties only in the event of knowing and willful violations of statute. … The legislation is properly tailored to require beneficial ownership disclosure only for those entities most likely to be utilized for illicit purposes.”
“This legislation is good news from every perspective: law enforcement, national security, international development and a banking industry desperately wishing to modernize its approach to finding illicit actors,” Greg Baer, CEO of the Bank Policy Institute, said in a statement.
Banks have long complained about the costs of reporting suspicious activities, and those costs are now shifting to small businesses.
“If it only applied to shell companies, we wouldn’t probably have as many objections,” Kevin Kuhlman, a National Federation of Independent Business lobbyist told Bloomberg News. But they do, because more firms now have to submit accurate ownership information.
“The Congressional Budget Office estimated that the bill would generate substantial expense by requiring as many as 30 million new filings a year to the Treasury Department’s Financial Crimes Enforcement Network,” Bloomberg wrote.