Terrorism Finance, Business Associations, and the ‘Incorporation Transparency Act’

Abstract

Each year, two million corporations and limited liability companies are established in the United States. The process by which these entities are created has traditionally been governed under state law. The Senate is considering a bill introduced by Senator Levin requiring that states maintain an accurate and updated list of all beneficial owners of corporations and limited liability companies created in the state and make that list available to law enforcement and others by subpoena. In many states, these lists will become part of the states’ public records similar to other business entities’ formation documents.

Business entities are created when formation documents are filed with a particular state. States require that business entities maintain updated contact information of an agent for service of process to facilitate litigation against a business entity, but, owing to the complexities of business ownership, states do not currently undertake the task of keeping an up-to-date list of all current owners of all business entities organized under their laws.

In support of the Levin Bill, its proponents cite a handful of cases investigated by federal agencies that were later dropped because of difficulty determining beneficial ownership in the investigated entities as evidence for why the bill is vital to stopping terrorism financing. This article offers a unique analysis of the pattern of terrorism financing to reveal that the use of business entities would not be useful to financiers of terrorism. A proper analysis of the effects, costs, and potential constitutional challenges facing the Bill reveals it as little more than an empty gesture meant to generate the appearance of action.

Keywords: Carl Levin, Charles Chuck Grassley, Chris Dodd, Claire McCaskill, DOJ, Department of Justice, Incorporation Transparency and Law Enforcement Assistance Act, LLC, NASS, National Association of Secretaries of State, Senate Homeland Security Committee, Senate Oversight Committee, Treasury Department

JEL Classification: G32, G38, K22, M14