Senator Carl Levin has reintroduced the Incorporation Transparency and Law Enforcement Assistance Act, which would impose requirements on states to collect information on the direct and indirect owners of limited liability companies and corporations. This is information which in many states, including Delaware, is non-public (and not on record with any government entity). The penalties imposed by the proposed act have been described as draconian by some commentators.
LLC Law Monitor has further details regarding, and criticism of, the proposed legislation, which seems to pop up every few years:
ITLEA just won’t go away. This bill has been introduced several times before, beginning in 2008 when one of the sponsors was then-Senator Barack Obama. Although ITLEA is supported by a variety of law enforcement agencies, it is opposed by, among others, the American Bar Association, the National Association of Secretaries of State, the National Conference of State Legislatures, the U.S. Chamber of Commerce, a coalition of 17 business organizations including the American Institute of CPAs, law professors, and every corporate lawyer with whom I have discussed it.
Comments. This is a bad bill. It is an example of the federal government attempting to federalize an area of commerce traditionally governed by the states. It reflects a lack of understanding of the complexities of many modern business entities and structures. The bill would be burdensome on states and legitimate businesses, while the purported targets such as money launderers, terrorists, and their ilk would presumably avoid reporting truthfully on their ownership when they create a corporation or LLC to own parts of their criminal enterprises.
ITLEA’s core definitions are ambiguous and poorly drafted. For some complex business structures it would be a mammoth task to attempt to determine the beneficial owners of each entity, fraught with uncertainty because of the poorly written statute.
ITLEA would require the invasion of the privacy of millions of legitimate business people. The privacy of LLC members, investors, lenders, and other contractual parties is important and valuable in the business world. For example, identifying the strategic investors in a high-tech company can reveal valuable insights about the company’s future directions. Although ITLEA does not require disclosure by the states of beneficial owner information, a majority of the states have right-to-know laws that would likely require public disclosure of the beneficial owner information. And once the federal government requires that beneficial owner information be collected, it seems unlikely that the states will change their laws to prevent public disclosure.